# Upexi, Inc.: Form 10-Q for the period ended Sep 30, 2023

- Company: [Upexi, Inc.](/companies/upxi.md) (CIK 1775194)
- Form: 10-Q
- Filed: 2023-11-20
- Accepted by EDGAR: Nov 20, 2023, 21:30 ET
- Period: 2023-09-30
- Accession: 0001477932-23-008695
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1775194/000147793223008695/upxi_10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1775194/000147793223008695/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-07-01 to 2023-09-30 | $27.3m | us-gaap:Revenues |
| Cost of revenue | 3 months, 2023-07-01 to 2023-09-30 | $18.6m | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2023-07-01 to 2023-09-30 | $8.7m | us-gaap:GrossProfit |
| Operating income | 3 months, 2023-07-01 to 2023-09-30 | −$1.1m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2023-07-01 to 2023-09-30 | $472.4k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-07-01 to 2023-09-30 | −$1.4m | us-gaap:NetIncomeLoss |
| Basic EPS | 3 months, 2023-07-01 to 2023-09-30 | −$0.07 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-07-01 to 2023-09-30 | 20,244,618 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2023-07-01 to 2023-09-30 | −$2.3m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2023-07-01 to 2023-09-30 | $296.3k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2023-09-30 | $417.1k | us-gaap:Cash |
| Current assets | at 2023-09-30 | $24.9m | us-gaap:AssetsCurrent |
| Total assets | at 2023-09-30 | $65.2m | us-gaap:Assets |
| Current liabilities | at 2023-09-30 | $20.0m | us-gaap:LiabilitiesCurrent |
| Long-term debt | at 2023-09-30 | $27.4m | us-gaap:LongTermDebt |
| Shareholders' equity | at 2023-09-30 | $27.6m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 13,997 characters.

### General Overview

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

For the three months ended September 30, 2022 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 a Nevada corporation, Cygnet Online, LLC a Delaware limited liability corporation and Upexi Pet Products, LLC (“LuckyTail”), a Delaware limited liability corporation as of August 12, 2022.

For the three months ended September 30, 2023, the condensed consolidated financial statements of Upexi, Inc. include all of the subsidiary accounts included in the condensed consolidated financial statements for the three months ended September 30, 2022 and include E-Core Technology, Inc. (“E-Core”).

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

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### Operating Segments

The Company’s financial reporting is organized into two segments: Our Branded Product segment and our Recommerce segment. Our Branded Product segment is focused on the development, growth and distribution of the branded products that we own. Our Recommerce segment is focused on the purchase and sale of new and used products through channels such as Amazon and wholesale distributors. Other sources of revenue and related costs are aggregated and viewed by management as immaterial or have similar economic characteristics, products production, distribution processes and regulatory environment as the other product sales.

### Segment Information

The Company provides the following segments: (a) branded product segment and (b) product distribution segment.

### For the three months ended September 30, 2023:

|  | Branded Products | Recommerce | Total |
| --- | ---: | ---: | ---: |
| Revenue | $6,562,613 | $20,785,029 | $27,347,642 |
| Loss from operations | $(1,334,082) | $191,928 | $(1,142,154) |
| Other (expense) | $(842,137) | $(32,048) | $(874,185) |
| Depreciation expense | $286,084 | $- | $286,084 |
| Income tax (expense) benefit | $511,525 | $(39,158) | $472,367 |
| Segment assets: |  |  |  |
| Additions to property, plant, and equipment | $504,495 | $- | $504,495 |
| Total assets | $35,029,593 | $29,743,782 | $64,773,375 |

### For the three months ended September 30, 2022:

|  | Branded Products | Recommerce | Total |
| --- | ---: | ---: | ---: |
| Revenue | $3,971,280 | $7,247,519 | $11,218,799 |
| Loss from operations | $(1,965,497) | $(411,901) | $(2,377,398) |
| Other (expense) | $(427,278) | $(4,430) | $(431,708) |
| Depreciation expense | $194,497 | $- | $194,497 |
| Income tax benefit | $580,725 | $127,476 | $708,201 |
| Segment assets: |  |  |  |
| Additions to property, plant, and equipment | $218,280 | $- | $218,280 |
| Total assets | $50,056,078 | $13,796,989 | $63,853,067 |

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### 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 September 30, 2023 and 2022, which are included herein.

### Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022

|  | September 30, 2023 | 2022 | Change |
| --- | ---: | ---: | ---: |
| Revenue | $27,347,642 | $11,218,799 | $16,128,843 |
| Cost of revenue | 18,639,793 | 5,401,316 | 13,238,477 |
| Sales and marketing expenses | 2,848,667 | 1,727,469 | 1,121,198 |
| Distribution costs | 2,850,616 | 2,127,846 | 722,770 |
| General and administrative expenses | 2,255,928 | 2,127,846 | 128,082 |
| Other operating expenses | 1,894,792 | 1,851,732 | 43,060 |
| Other expenses (income) | 874,185 | 431,708 | 442,477 |
| Net (loss) income from continuing operations | $(1,142,154) | $(2,745,520) | $916,765 |

Revenues increased by $16,128,843 or 144% to $27,347,642 compared with revenue of $11,218,799 in the same period last year. The revenue growth was primarily the result of the acquisition of E-Core and growth in our Brand sales and offset by a slowing of the Recommerce Amazon sales channel. The Company’s strategy will continue to focus on the growth of our brands organically and through expansion into additional international markets.

Cost of revenue increased by $13,238,477 or 245% compared with the same period last year. The cost of revenue increase was primarily related to the acquisition of E-Core’s Recommerce business. Gross profit increased by $2,890,366 compared to the prior year. The combined Recommerce segment only increased $782,038 while the Brands increased gross profit by over $2,100,000. Gross margin declined by approximately 20% to 32% as a result of significant increases in the lower margin sales of the Recommerce business segment.

Sales and marketing expenses increased by $1,121,198 or 65% compared with the same period last year. The increase in sales and marketing expenses was primarily related to the focus on the Brand segment revenue growth and strategic marketing to maximize the return on long-term recurring customer growth.

Distribution costs increased $722,770 or 34% compared with the same period last year. The increase in distribution costs was primarily related to the overall growth of revenue, however management has implemented several consolidation, repackaging and pricing strategies to continue to reduce the overall distribution costs of our product sales. Management expects the implementation of its initial strategies to be completed by March of 2024.

General and administrative expenses increased by $128,082 or 6% compared with the same period last year. Management continues to operate the Company efficiently to enable sales growth without significant increases in general and administrative costs.

Other operating expenses increased by $43,060 or 2% compared with the same period last year. The increase in other operating expenses was primarily related to the amortization of acquired intangible assets, offset by a decrease of the amortization of stock-based compensation.

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During the three months ended September 30, 2023, the Company incurred interest expense of $874,185 compared to $453,829 in interest expense incurred during the three months ended September 30, 2022. The increase of interest expense for the three months ended September 30, 2023, was primarily due to the $363,412 of imputed interest amortization related to acquisitions.

The Company had a net loss from continued operations of $1,828,755 for the three months ended September 30, 2023 compared to a loss of $2,745,520 for the three months ended September 30, 2022. The decrease in the net loss from continuing operations is primarily related to the above-mentioned changes.

### Liquidity and Capital Resources

#### Working Capital

|  | As of September 30, 2023 | As of June 30, 2023 |
| --- | ---: | ---: |
| Current assets | $24,917,576 | $25,455,714 |
| Current liabilities | 20,036,817 | 19,606,010 |
| Working capital | $4,880,759 | $5,849,704 |

#### Cash Flows

|  | Three Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: |
| Cash flows used by operating activities – continuing operations | $(2,120,290) | $(2,516,787) |
| Cash flows used by investing activities – continuing operations | (648,721) | (2,647,930) |
| Cash flows (used in) provided by financing activities – continuing operations | (1,082,215) | 1,317,814 |
| Cash flows used in operating activities – discontinued operations | (223,957) | (4,240) |
| Cash flows used by investing activities – discontinued operations | - | - |
| Cash flows provided (used by) financing activities – discontinued operations | - | - |
| Net decrease in cash during the period | $(4,075,183) | $(3,851,143) |

On September 30, 2023, the Company had cash of $417,108, a decrease of $4,492,291 from June 30, 2023.

Net cash from operating activities benefited from non-cash expenses of $2,273,341, which was used in operating for the growth of accounts receivable of $2,435,858 and inventory of $1,138,306 and payment of prepaid expenses and liabilities. The negative cash flow from operations was anticipated by management related to the sales in the first quarter to wholesale and distributors and our purchases of inventory in anticipation of sales growth in the second fiscal quarter. Management anticipates inventory and accounts receivable balances to normalize to historical levels and free up cash flow in January 2024.

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Net cash used in investing activities for the three months ended September 30, 2023 was $648,721 and was primarily related to the $500,000 cash used to purchase the remaining 45% ownership of Cygnet and expenses related to the consolidation project to eliminate redundant cost.

Net cash used by financing activities for the three months ended September 30, 2023, was $1,080,215 compared to cash provided of $1,317,814 during the three months ended September 30, 2022. The cash used by financing activities was the repayment of $764,844 on the line of credit and $317,917 repayment of notes payable.

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., 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 intends to terminate the registration statement covering the senior secured debt.

In June 2022, the Company executed a promissory note with Allan Marshall, the Company’s Chief Executive Officer, in the original principal amount of $1,500,000. On November 15, 2023, the Company executed an amendment to the promissory note with Allan Marshall, the Company’s Chief Executive Officer, to pay interest only for 18 months at an interest rate of 12%, per annum and then amortize the note over a 12 month period, starting in June of 2025. The principal outstanding is $1,500,000. In addition to this, the Company issued Mr. Marshall a warrant to purchase up to 375,000 shares of the Company’s common stock at a per share price of $1.05. The note has been classified as long-term in the financial statements.

On February 22, 2023, the Company executed a promissory note with an investor, in the original principal amount of $560,000. On November 15, 2023, the Company executed an amendment to the promissory note with an investor to pay interest only for 18 months at cash interest rate of 12%, per annum and then amortize the note over a 12 month period, starting in June of 2025. The principal outstanding is $560,000. In addition to this, the Company issued the investor a warrant to purchase up to 125,000 shares of the Company’s common stock at a per share price of $1.05. The note has been classified as long-term in the financial statements.

On February 22, 2023, the Company executed a promissory note with an investor, in the original principal amount of $2,150,000. In November of 2023, the Company executed an amendment to the promissory note with an investor to pay interest only for 18 months at cash interest rate of 12%, per annum and then amortize the note over a 12 month period, starting in June of 2025. The principal outstanding is $2,150,000. In addition to this, the Company issued the investor a warrant to purchase up to 500,000 shares of the Company’s common stock at a per share price of $1.05. The note has been classified as long-term in the financial statements.

On May 12, 2023, the Company agreed to sell 2,121,213 shares of common for a purchase price of approximately $7,000,000. After deducting the underwriter’s commissions, discounts, and offering expenses payable by the company, the Company expects to receive net proceeds of approximately $6,060,000. In addition, the Company issued warrants to purchase approximately 169,000 shares of the Company’s common stock at a purchase price of $4.774 per common share.

The Company through its wholly owned subsidiary, New England Technology, Inc., maintains a $10,000,000 inventory and accounts receivable line of credit, interest rate of prime minus ½% payable monthly. The outstanding balance at September 30, 2023 was $118,001 and $882,845 at June 30, 2023. The availability under the line of credit at September 30, 2023 was $6,220,013.

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 of our debt obligations.

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### 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, 4,791 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 September 30, 2023 (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.

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

(i) inadequate segregation of duties consistent with control objectives; and

(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 appointment of additional qualified personnel to address inadequate segregation of duties and implement modifications to our financial controls to address such inadequacies, by the end of our 2024 fiscal year as resources allow.

We are currently reviewing our disclosure controls and procedures related to these material weaknesses and expect to implement changes in the current fiscal year, including identifying specific areas within our governance, accounting and financial reporting processes to add adequate resources to potentially mitigate these material weaknesses.

We are currently reviewing our disclosure controls and procedures related to these material weaknesses and expect to implement changes in the current fiscal year, including identifying specific areas within our governance, accounting and financial reporting processes to add adequate resources to potentially mitigate these material weaknesses.

Our management will continue to monitor and evaluate the effectiveness of our internal controls and procedures and our internal controls over financial reporting on an ongoing basis and is committed to taking further action and implementing additional enhancements or improvements, as necessary and as funds allow.

Because of its inherent limitations, internal controls over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

### 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 September 30, 2023, that have materially or are reasonably likely to materially affect, our internal controls over financial reporting. The Company has added significant qualified resources to ensure proper segregation of duties and proper review of the financial reporting policies and procedures.

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Filed Nov 20, 2023.
Source: SEC EDGAR, the filing index for accession 0001477932-23-008695. Last ingested by Listed: Oct 24, 2026, 15:15 ET. No prices; not investment advice.