# Upexi, Inc.: Form 10-Q for the period ended Dec 31, 2022

- Company: [Upexi, Inc.](/companies/upxi.md) (CIK 1775194)
- Form: 10-Q
- Filed: 2023-02-15
- Accepted by EDGAR: Feb 15, 2023, 11:37 ET
- Period: 2022-12-31
- Accession: 0001477932-23-001046
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1775194/000147793223001046/upxi_10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1775194/000147793223001046/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2022-12-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2022-10-01 to 2022-12-31 | $27.1m | us-gaap:Revenues |
| Revenue | 6 months, 2022-07-01 to 2022-12-31 | $38.6m | us-gaap:Revenues |
| Cost of revenue | 3 months, 2022-10-01 to 2022-12-31 | $16.8m | us-gaap:CostOfRevenue |
| Cost of revenue | 6 months, 2022-07-01 to 2022-12-31 | $22.3m | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2022-10-01 to 2022-12-31 | $10.3m | us-gaap:GrossProfit |
| Gross profit | 6 months, 2022-07-01 to 2022-12-31 | $16.4m | us-gaap:GrossProfit |
| Operating income | 3 months, 2022-10-01 to 2022-12-31 | −$2.1m | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2022-07-01 to 2022-12-31 | −$5.1m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2022-10-01 to 2022-12-31 | $755.3k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2022-07-01 to 2022-12-31 | −$47.1k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2022-10-01 to 2022-12-31 | $2.6m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2022-07-01 to 2022-12-31 | $72.2k | us-gaap:ProfitLoss |
| Diluted EPS | 3 months, 2022-10-01 to 2022-12-31 | $0.15 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2022-07-01 to 2022-12-31 | $0.01 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2022-10-01 to 2022-12-31 | $0.16 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2022-07-01 to 2022-12-31 | $0.01 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2022-10-01 to 2022-12-31 | 19,030,705 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2022-07-01 to 2022-12-31 | 18,617,164 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2022-07-01 to 2022-12-31 | $3.6m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2022-07-01 to 2022-12-31 | $184.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2022-12-31 | $4.5m | us-gaap:Cash |
| Current assets | at 2022-12-31 | $22.1m | us-gaap:AssetsCurrent |
| Total assets | at 2022-12-31 | $76.6m | us-gaap:Assets |
| Current liabilities | at 2022-12-31 | $15.1m | us-gaap:LiabilitiesCurrent |
| Shareholders' equity | at 2022-12-31 | $36.9m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 18,265 characters.

### General Overview

As used in this current report and unless otherwise indicated, the terms “we”, “us” and “our” mean Upexi, Inc.

For the six months ended December 31, 2021 the condensed consolidated financial statements of Upexi, Inc. include the accounts of the Company and its wholly-owned subsidiaries; Trunano Labs, Inc., a Nevada corporation, Steam Distribution, LLC, a California limited liability company; One Hit Wonder, Inc., a California corporation; Havz, LLC, d/b/a Steam Wholesale, a California limited liability company, One Hit Wonder Holdings, LLC a California corporation; SWCH LLC, a Delaware limited liability company; Cresco Management LLC, a California limited liability company, and VitaMedica, Inc. a Nevada corporation as of August 1, 2021, and Interactive Offers, LLC a Delaware limited liability corporation as of October 1, 2021.

For the six months ended December 31, 2022, the condensed consolidated financial statements of Upexi, Inc. include all of the subsidiary accounts included in the condensed consolidated financial statements for the six months ended December 31, 2021 and include the subsidiaries in which the Company holds a controlling financial interest as of December 31, 2022, which includes Cygnet Online, LLC a Delaware limited liability corporation, as of April 1, 2022, Upexi Pet Products, LLC (“LuckyTail”), a Delaware limited liability corporation as of August 12, 2022 and E-Core Technology, Inc. (“E-Core”) as of October 21, 2022.

All intercompany accounts and transactions have been eliminated as a result of the consolidation.

### Operating Segments

The Company’s financial reporting is organized into only one segment, product sales. The Company’s internal reporting for product sales is organized into three channels of distribution: Upexi, Inc. branded products, customers’ branded products and white label products that are sold under customer brands. These product sales are aggregated and viewed by management as one reportable segment due to their similar economic characteristics, products, production, distribution processes and regulatory environment.

### Results of Operations

The following summary of the Company’s operations should be read in conjunction with its unaudited condensed consolidated financial statements for the three months ended December 31, 2022, and 2021, which are included herein.

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### Three Months Ended December 31, 2022, Compared to Three Months Ended December 31, 2021

|  | December 31, 2022 | 2021 | Change |
| --- | ---: | ---: | ---: |
| Revenue | $27,086,672 | $4,983,557 | $22,103,115 |
| Cost of revenue | 16,773,493 | 711,246 | 16,062,247 |
| Sales and marketing expenses | 3,707,925 | 1,735,194 | 1,972,731 |
| Distribution costs | 3,575,545 | 821,630 | 2,753,915 |
| General and administrative expenses | 2,910,655 | 3,003,919 | (93,264) |
| Other operating expenses | 2,257,475 | 1,247,529 | 1,009,946 |
| Other expenses (income) | 5,770,679 | (48,541) | 5,819,220 |
| Net income (loss) attributable to Upexi, Inc. | $2,669,679 | $(258,247) | $2,927,926 |

The three months ended December 31, 2022 include three acquisitions completed after December 31, 2021. These acquisitions were Cygnet Online, LLC, our Amazon aggregation business, LuckyTail our initial brand in the pet industry with products and sales channels both domestic and international, and our most recent, E-Core our product distribution business, which also includes Tytan Tiles, a children’s toy brand. These acquisitions, coupled with the elimination of the discontinued operations from the sale of Infusionz and certain manufacturing operations, has significantly reduced the value of a direct comparison of the prior year to the current operations.

Revenues increased by $22,103,115 or 444% to 27,086,672 compared with revenue of $4,983,557 in the same period last year. The revenue growth was primarily the result of the three acquisitions and was offset from the sale of Infusionz. The quarter did not include a complete three months of operations of E-Core as the acquisition was effective October 21, 2022. Management believes that there is significant opportunity in the next 12 months for organic growth within the newly acquired business and will focus the acquisition targets on businesses that will enhance our current products or allow the business to accelerate growth.

Cost of revenue increased by $16,062,247 or 2,258% to $16,773,493 compared with cost of revenue of $711,246 in the same period last year. The cost of revenue growth was primarily related to the acquisition of four companies and offset with the sale of Infusionz. Gross profit increased by over $6,000,000 compared to the prior year. Management will seek to improve the gross profit and the overall gross margin in the next 12 months as we are able to leverage the significant increase in our purchasing requirements and continue to consolidate our operations.

Sales and marketing expenses increased by $1,972,731 or 103% compared with the same period last year. The increase in sales and marketing expenses was primarily related to the acquisitions, however management also increased the sales and marketing budget for the quarter in our direct to consumer sales channels as the Company capitalize on an opportunity to take advantage of lower costs to estimated life time value of the customer, while other companies were taking a more defensive wait and see approach. Management believes that this strategy will yield significant returns in the next 12 months. We anticipate our advertising expenses will be reduced in the following quarters, which will increase our overall profitability.

Distribution costs increased $2,753,915 or 335% compared with the same period last year. The increase in distribution costs was primarily related to the three acquisitions, offset by the sale of Infusionz and the classification of these expenses as part of discontinued operations. In addition, there were slight increases in transportation costs and third-party provider rates, which are expected to be short term and management has a strategy that will start to decrease the overall percentage of distribution costs to sales.

General and administrative expenses decreased by $93,264 or 3% compared with the same period last year. As the Company has changed with the acquisitions and the sale of Infusionz, management has managed the general and administrative costs and will continue to implement strategies to decrease the percentage of general and administrative costs when compared to total sales.

Other operating expenses increased by $1,009,946 or 81% compared with the same period last year. These expenses are primarily non-cash and increase based on the intangible assets created with acquisitions and the continued amortization of stock compensation.

During the three months ended December 31, 2022, the Company had other income of $5,770,679 compared to an expense of $48,541 in the prior year. The income was related to the gain recognized from the sale of Infusionz and select manufacturing business and offset with interest expenses incurred from the refinancing and early termination of debt obtained in June of 2022.

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The Company had net income of $2,669,679 compared to a net loss of $258,247 in the prior year. The increase in net income is primarily related to the above-mentioned changes.

Management believes that the operations during the three months ended December 31, 2022, are more indicative of the future, except with certain strategies, such as the increase in sales and marketing spend and the sale of Infusionz and certain manufacturing business. We will continue to improve the gross profit, while reducing the general and administrative expenses as compared to the sales as the Company continues to focus on sales growth while continuing to improve net income through the consolidation of operations.

### Six Months Ended December 31, 2022, Compared to Six Months Ended December 31, 2021

|  | December 31, 2022 | 2021 | Change |
| --- | ---: | ---: | ---: |
| Revenue | $38,643,683 | $8,853,667 | $29,790,016 |
| Cost of revenue | 22,289,773 | 1,982,975 | 20,306,798 |
| Sales and marketing expenses | 5,733,385 | 2,735,258 | 2,998,127 |
| Distribution costs | 6,063,379 | 933,463 | 5,129,916 |
| General and administrative expenses | 5,409,524 | 4,586,351 | 823,173 |
| Other operating expenses | 4,260,194 | 2,030,707 | 2,229,487 |
| Other expenses (income) | 5,336,620 | 259,001 | 5,077,619 |
| Net income attributable to Upexi, Inc. | $72,164 | $576,544 | $(504,380) |

The six months ended December 31, 2022 include three acquisitions completes after December 31, 2021. These acquisitions were Cygnet Online, LLC, our Amazon aggregation business, LuckyTail our initial brand in the pet industry with products and sales channels that sells both domestically and internationally and our most recent, E-Core, our product distribution business, which also includes Tytan Tiles, a children’s toy brand. These acquisitions, coupled with the elimination of the discontinued operations from the sale of Infusionz and certain manufacturing operations, has significantly reduced the value of a direct comparison of the prior year to the current operations.

Revenues increased by $29,790,016 or 336% to 38,643,683 compared with revenue of $8,853,667 in the same period last year. The revenue growth was primarily the result of the three acquisitions and was offset from the sale of Infusionz. The six months ended December 31, 2022 only included two and a half months of revenue from E-Core, as the acquisition was effective October 21, 2022 and did not include a complete six months of revenue from LuckyTail. Management believes that there is significant opportunity in the next 12 months for organic growth within the newly acquired business and will focus the acquisition targets on businesses that will enhance our current products or allow the business to accelerate growth.

Cost of revenue increased by $20,306,798 or 1,024% to 22,289,773 compared with cost of revenue of $1,982,975 in the same period last year. The cost of revenue growth was primarily related to the acquisition of three companies and offset with the sale of Infusionz. The gross profit increase increased by over $9,000,000 compared to the prior year. Management will seek to improve the gross profit and the overall gross margin in the next 12 months as we are able to leverage the significant increase in our purchasing requirements and continue to consolidate our operations.

Sales and marketing expenses increased by $2,998,127 or 110% compared with the same period last year. The increase in sales and marketing expenses was primarily related to the acquisitions, however management also increased the sales and marketing budget for our direct to consumer sales channels as the Company capitalize on an opportunity of lower costs to estimated life time value of the customer. Management believes that this strategy will yield significant returns in the next 12 months. We anticipate our advertising expenses will be reduced in the following quarters, which will increase our overall profitability.

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Distribution costs increased $5,129,916 or 550% compared with the same period last year. The increase in distribution costs was primarily related to the three acquisitions, offset by the sale of Infusionz and the classification of these expenses as part of discontinued operations. Management will continue to look at efficiencies and opportunities to manage these costs and maintain these costs as a percentage of revenue.

General and administrative expenses increased by $823,173 or 18% compared with the same period last year. The Company continued to have additional costs incurred in the first quarter related to the sale of Infusionz and the transition. Management will continue to manage the general and administrative costs and implement strategies to decrease the percentage of general and administrative costs as compared to total sales.

Other operating expenses increased by $2,229,487 or 110% compared with the same period last year. These expenses are primarily non-cash and increase based on the intangible assets created with acquisitions and the continued amortization of stock compensation.

During the six months ended December 31, 2022, the Company had other income of $5,336,620 compared to an income of $259,001 in the prior year. The income was related to the gain recognized from the sale of Infusionz and select manufacturing business and the gain from extinguishment of the SBA PPP loan in the prior year. In the current year, the income was offset with interest expenses incurred from the refinancing and early termination of debt obtained in June of 2022.

The Company had net income of $72,164 compared to $576,544 in the prior year. The decrease in net income is primarily related to the above-mentioned changes.

### Liquidity and Capital Resources

#### Working Capital

|  | As of December 31, 2022 | As of June 30, 2022 |
| --- | ---: | ---: |
| Current assets | $22,124,543 | $20,764,601 |
| Current liabilities | 15,094,910 | 9,302,756 |
| Working capital | $7,029,633 | $11,461,845 |

#### Cash Flows

|  | Six Months Ended December 31, 2022 | 2021 |
| --- | ---: | ---: |
| Cash flows provided by operating activities – continuing operations | $3,592,658 | $1,216,187 |
| Cash flows provided by (used in) investing activities – continuing operations | 3,230,642 | (8,211,212) |
| Cash flows used in financing activities – continuing operations | (9,464,945) | (117,037) |
| Cash flows used by operating activities – discontinued operations | - | (826,188) |
| Cash flows provided by (used by) investing activities – discontinued operations | - | - |
| Cash flows provided by (used by) financing activities – discontinued operations | - | - |
| Net decrease in cash during the period | $(2,641,645) | $(7,938,250) |

On December 31, 2022, the Company had cash of $4,508,161, a decrease of $2,641,645 from June 30, 2022.

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Net cash from operating activities benefited from non-cash expenses of $4,296,292, which were offset by the non-cash gains of $7,535,661, primarily consisting of the gain from the sale of Infusionz and select manufacturing business and the amortization of the original issue discount of the senior security debt. Cash flow from operations increased significantly by the $6,043,078 decrease of inventory on December 31, 2022.

Net cash provided by investing activities for the six months ended December 31, 2022 was $3,230,642 and was primarily related to the $5,500,000 of proceeds from the sale of Infusionz and select manufacturing business. This was offset by the $500,000 final payment to the sellers of VitaMedica and the $2,500,000 paid for the purchase of LuckyTail. For the period ended December 31, 2021, the use of cash was for the VitaMedica acquisition, the Interactive Offers purchase and the acquisition of property and equipment. The most significant purchase was the building located in Clearwater Florida for approximately $4,000,000.

Net cash used by financing activities for the six months ended December 31, 2022, was $9,464,945 compared to the use of $117,037 during the six months ended December 31, 2021. The cash used by financing activities was the repayment of $7,201,079 to the line of credit, the repayment and termination of the senior convertible note and the installment payments of several other notes. The Company obtained a note from a related party and a mortgage on the building purchased in the prior year. The funds obtained were used for investing activities and the repayment of the senior convertible note. Approximately $150,000 of cash used for the period ended December 31, 2021, was for the repayment of notes payable and was offset by obtaining financing of a vehicle.

On October 19, 2022, the Company and its indirect wholly owned subsidiary, Upexi 17129 Florida, LLC entered into a loan agreement with Professional Bank, A Florida state-chartered bank, providing for a mortgage on the Company’s principal office in N. Clearwater, Florida. The company received $3,000,000 in connection with the transaction. The principal is to be paid back to Professional Bank over a term of ten years. The proceeds of the loan were utilized by the Company to pay down its loan facility with Acorn Capital, LLC in the amount of $2,780,200, net of fees and other expenses.

On October 31, 2022, Upexi, Inc. (the “Company”), paid $4,275,071 in principal, $613,466 in accrued interest, $250,000 for settlement of a Put Option and $7,900 in miscellaneous fees for a total of $5,146,437 to the holders of the $15 million senior secured convertible notes entered into on June 28, 2022. The payment terminates the agreement with the noteholders. The Company also terminated the registration statement covering the senior secured notes payable.

We estimate that we will have sufficient working capital to fund our operations over the twelve months following the date of the issuance of these condensed consolidated financial statements and meet all our debt obligations.

In December 2019, a novel strain of coronavirus (COVID-19) surfaced. The spread of COVID-19 around the world has caused significant volatility in U.S. and international markets. There is significant uncertainty around the breadth and duration of business disruptions related to COVID-19, as well as its impact on the U.S. and international economies and, as such, the Company has transitioned to a combination of work from home and social distancing operations. There has been minimal impact to our internal operations from the transition. The Company is unable to determine if there will be a material future impact to its customers’ operations and ultimately an impact to the Company’s overall revenues.

### Off-Balance Sheet Arrangements

There are no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

## Controls and procedures

As filed, 3,993 characters.

### Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our senior management, including our chief executive officer and chief financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of December 31, 2022 (the “Evaluation Date”). Based on this evaluation, our principal executive officer and principal financial and accounting officer concluded as of the Evaluation Date that our disclosure controls and procedures were not effective such that the information relating to us required to be disclosed in our Securities and Exchange Commission (“SEC”) reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to our management, including our principal executive officer and principal financial and accounting officer, as appropriate to allow timely decisions regarding required disclosure. This conclusion is based on findings that constituted material weaknesses. A material weakness is a deficiency, or a combination of control deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s interim financial statements will not be prevented or detected on a timely basis.

In performing the above-referenced assessment, our management identified the following material weaknesses:

(i) inadequate segregation of duties consistent with control objectives.

(ii) lack of multiple levels of supervision and review.

We believe the weaknesses and their related risks are not uncommon in a company of our size because of the limitations in the size and number of staff. Due to our size and nature, segregation of all conflicting duties has not always been possible and may not be economically feasible. However, we plan to take steps to enhance and improve the design of our internal control over financial reporting. During the period covered by this quarterly report on Form 10-Q, we have not been able to remediate the material weaknesses identified above. To remediate such weaknesses, we plan to implement the following changes by the end of our 2023 fiscal year as resources allow:

(i) Appoint additional qualified personnel to address inadequate segregation of duties and implement modifications to our financial controls to address such inadequacies; and

(ii) We will attempt to implement the remediation efforts set out herein by the end of the 2023 fiscal year.

Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Management believes that despite our material weaknesses set forth above, our financial statements for the quarter ended December 31, 2022, are fairly stated, in all material respects, in accordance with U.S. GAAP.

### Changes in Internal Control Over Financial Reporting

There have been no changes in our internal controls over financial reporting (as defined in Rules 12a-15(f) and 15d-15(f) under Exchange Act) that occurred during the quarter ended December 31, 2022, that have materially or are reasonably likely to materially affect, our internal controls over financial reporting. We believe that a control system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the control system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within any company have been detected.

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Filed Feb 15, 2023.
Source: SEC EDGAR, the filing index for accession 0001477932-23-001046. Last ingested by Listed: Oct 24, 2026, 15:15 ET. No prices; not investment advice.