# Upexi, Inc.: Form 10-Q for the period ended Mar 31, 2024

- Company: [Upexi, Inc.](/companies/upxi.md) (CIK 1775194)
- Form: 10-Q
- Filed: 2024-07-09
- Accepted by EDGAR: Jul 9, 2024, 10:01 ET
- Period: 2024-03-31
- Accession: 0001477932-24-004117
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1775194/000147793224004117/upxi_10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1775194/000147793224004117/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-01-01 to 2024-03-31 | $14.4m | us-gaap:Revenues |
| Revenue | 9 months, 2023-07-01 to 2024-03-31 | $59.6m | us-gaap:Revenues |
| Cost of revenue | 3 months, 2024-01-01 to 2024-03-31 | $11.6m | us-gaap:CostOfRevenue |
| Cost of revenue | 9 months, 2023-07-01 to 2024-03-31 | $42.9m | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2024-01-01 to 2024-03-31 | $2.9m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2023-07-01 to 2024-03-31 | $16.7m | us-gaap:GrossProfit |
| Operating income | 3 months, 2024-01-01 to 2024-03-31 | −$4.9m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-07-01 to 2024-03-31 | −$8.0m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2024-01-01 to 2024-03-31 | $1.5m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2023-07-01 to 2024-03-31 | $2.7m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-01-01 to 2024-03-31 | −$4.1m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-07-01 to 2024-03-31 | −$7.9m | us-gaap:ProfitLoss |
| Basic EPS | 3 months, 2024-01-01 to 2024-03-31 | −$0.20 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-07-01 to 2024-03-31 | −$0.39 | us-gaap:EarningsPerShareBasic |
| Operating cash flow | 9 months, 2023-07-01 to 2024-03-31 | −$3.0m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2023-07-01 to 2024-03-31 | $770.7k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Current assets | at 2024-03-31 | $16.8m | us-gaap:AssetsCurrent |
| Total assets | at 2024-03-31 | $56.5m | us-gaap:Assets |
| Current liabilities | at 2024-03-31 | $24.2m | us-gaap:LiabilitiesCurrent |
| Shareholders' equity | at 2024-03-31 | $22.1m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 20,839 characters.

### General Overview

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

For the nine months ended March 31, 2023 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; VitaMedica, Inc., a Nevada corporation, Cygnet Online, LLC a Delaware limited liability corporation; Upexi Pet Products, LLC (“LuckyTail”), a Delaware limited liability corporation as of August 12, 2022; and E-Core Technology, Inc. (“E-core”) a Florida Corporation as of October 21, 2022

For the three months ended March 31, 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 and nine months ended March 31, 2024.

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

### 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, product production, distribution processes and regulatory environment as the other product sales.

For the three months ended March 31, 2024 and March 31, 2023, the share-based compensation of 212,758 and $1,146,299, respectively was allocated to the Branded Product segment. For the nine months ended March 31, 2024 and March 31, 2023, the share-based compensation of $965,299 and 3,126,472, respectively was allocated to the Branded Product segment.

All indirect corporate and public company general and administrative expenses are allocated to the Branded Product Segment.

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### Segment Information

The Company provides the following segments: (a) branded products segment and (b) recommerce segment.

### For the three months ended March 31, 2024:

|  | Branded Products | Recommerce | Total |
| --- | ---: | ---: | ---: |
| Revenue | $4,888,666 | $9,560,291 | $14,444,957 |
| Loss from operations | $(3,066,816) | $(1,870,231) | $(4,937,047) |
| Other expense | $(471,788) | $(190,090) | $(661,878) |
| Depreciation expense | $306,185 | $- | $306,185 |
| Income tax benefit | $820,351 | $681,244 | $1,501,595 |
| Segment assets: |  |  |  |
| Additions to property, plant, and equipment | $498,448 |  | 498,448 |
| Total assets | $22,418,439 | $34,088,988 | $56,507,427 |

### For the three months ended March 31, 2023:

|  | Branded Products | Recommerce | Total |
| --- | ---: | ---: | ---: |
| Revenue | $4,339,750 | $17,543,695 | $21,883,445 |
| Loss from operations | $(1,700,804) | $(432,060) | $(2,132,864) |
| Other expense | $(40,177) | $(112,183) | $(152,360) |
| Depreciation expense | $225,879 | $- | $225,879 |
| Income tax benefit | $379,689 | $117,191 | $496,880 |
| Segment assets: |  |  |  |
| Additions to property, plant, and equipment | $97,910 | $- | $97,910 |
| Total assets | $27,560,849 | $36,292,218 | $63,853,067 |

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### For the nine months ended March 31, 2024:

|  | Branded Products | Recommerce | Total |
| --- | ---: | ---: | ---: |
| Revenue | $15,072,684 | $44,513,464 | $59,586,148 |
| Loss from operations | $(5,307,384) | $(2,656,263) | $(7,963,647) |
| Other expense | $(2,118,982) | $(493,635) | $(2,612,617) |
| Depreciation expense | $901,521 | $- | $901,521 |
| Income tax benefit | $1,701,208 | $967,561 | $2,668,769 |
| Segment assets: |  |  |  |
| Additions to property, plant, and equipment | $978,904 | $- | $978,904 |
| Total assets | $22,418,439 | $34,088,988 | $56,507,427 |

### For the nine months ended March 31, 2023:

|  | Branded Products | Recommerce | Total |
| --- | ---: | ---: | ---: |
| Revenue | $12,850,078 | $43,432,464 | $56,282,542 |
| Loss from operations | $(5,215,259) | $(693,527) | $(5,908,786) |
| Other expense | $(2,031,513) | $(337,011) | $(2,368,524) |
| Depreciation expense | $649,883 | $- | $649,883 |
| Income tax benefit | $264,656 | $185,172 | $449,828 |
| Segment assets: |  |  |  |
| Additions to property, plant, and equipment | $281,879 | $- | $281,879 |
| Total assets | $27,560,849 | $36,292,218 | $63,853,067 |

### 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 March 31, 2024, and 2023, which are included herein.

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### Three Months Ended March 31, 2024, Compared to Three Months Ended March 31, 2023

|  | March 31, 2024 | 2023 | Change |
| --- | ---: | ---: | ---: |
| Revenue | $14,444,957 | $21,883,445 | $(7,438,488) |
| Cost of revenue | $11,561,834 | $14,305,698 | $(2,743,864) |
| Sales and marketing expenses | $1,547,161 | $2,258,937 | $(711,776) |
| Distribution costs | $2,291,945 | $2,352,684 | $(60,739) |
| General and administrative expenses | $2,399,387 | $2,602,312 | $(202,925) |
| Other operating expenses | $1,581,677 | $2,496,678 | $(915,001) |
| Other expenses | $661,878 | $152,360 | $509,518 |
| Net loss attributable to Upexi, Inc. | $4,118,612) | $(1,645,939) | $(2,472,673) |

Revenues decreased by $7,438,488 or 34% to $14,444,957 compared with revenue of $21,883,445 in the same period last year. The revenue decline was primarily the result of lower recommerce revenue through both Amazon channels and wholesale. Management made a decision to discontinue sales of electronic products in its Amazon channels after analyzing the high rate of returned products, lower margins after thirty to sixty days and the low liquidation value of Amazon returns. Branded Product sales increased slightly with increases in both the pet care products, children’s toy product and other branded products that are not heavily reliant on the Amazon sales channel. Management is focused on restructuring the Company to have more consistent sales from both product sales revenue and adding service revenue.

Cost of revenue decreased by $2,743,864 or 19% to $11,561,834 compared with cost of revenue of $14,305,698 in the same period last year. The cost of revenue decline was primarily related to the lower recommerce revenue. Gross profit decreased by approximately $1.7 million compared to the same period in the previous form significant write offs of inventory that was obsolete or unsellable. These products that were written off were primarily related to the recommerce business with many of them being Amazon returns or bulk products that could no longer be sold.

Sales and marketing expenses decreased by $711,776 or 32% compared with the same period in the prior year. The decreased in sales and marketing expenses was primarily related to management’s efforts to refine sales strategies to focus on long-term recurring sales growth through subscription revenue and sales channel expansion. Management will continue to manage the sales and marketing expenses on branded product sales and expects the overall sales and marketing to revenue to decrease and improve profitability.

Distribution costs decreased $60,739 or 3% compared with the same period in the prior year. The decrease in distribution costs was not related to sales and is expected to decrease overall as management has completed the consolidation of facilities and the distribution network at the end of June 2024.

General and administrative expenses decreased by $202,925 or 8% compared with the same period in the prior year. With the consolidation of facilities and ongoing adjustments for the sale of VitaMedica, Infusionz and Interactive Offers, 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 decreased by $915,001 or 37% compared with the same period in the prior year. These expenses are primarily non-cash expenses and have decreased based on the decreased amortization of stock compensation and offset by increases in depreciation.

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During the three months ended March 31, 2024, the Company had other expense of $661,878 compared to expense of $152,360 during the same period in the prior year. The increase is primarily related to the interest on debt. Management is working on eliminated this high interest debt as it restructures the Company.

The Company had a net loss of $4,118,612 compared a loss of $1,645,939 in the same period in the prior year. The decrease in net income is related to the decreased sales, the non-cash write off of 1.7 million in inventory and the costs associated with the distribution network until it was consolidated in June of 2024. Management expects additional administrative expenses related to the consolidation of the distribution network through June of 2024 and will then be able to recognize the improvements in fiscal year 2025.

### Nine Months Ended March 31, 2024, Compared to Nine Months Ended March 31, 2023

|  | March 31, 2024 | 2023 | Change |
| --- | ---: | ---: | ---: |
| Revenue | $59,586,148 | $56,282,542 | $3,303,606 |
| Cost of revenue | $42,864,857 | $35,555,746 | $7,309,111 |
| Sales and marketing expenses | $5,427,358 | $5,331,948 | $95,410 |
| Distribution costs | $7,516,748 | $8,010,373 | $(493,625) |
| General and administrative expenses | $6,685,881 | $6,807,739 | $(121,858) |
| Other operating expenses | $5,054,951 | $6,485,522 | $(1,430,571) |
| Other expenses | $2,612,617 | $2,368,524 | $244,093 |
| Net loss attributable to Upexi, Inc. | $(7,912,919) | $(1,568,180) | $(6,344,739) |

Revenues increased by $3,303,606 or 6% to $59,586,148 compared with revenue of $56,282,542 in the same period in the prior year. The revenue growth is based on the full nine months of E-core and Luckytail revenue in the current period compared to the prior year as those two entities were acquired during the prior year. Overall, the revenue has declined in the recommerce business in both Amazon channels and wholesale channels. Branded Product sales increased slightly with increases in both the pet care products, children’s toy product and other branded products that are not heavily reliant on the Amazon sales channel. Management is focused on restructuring the Company to have more consistent sales from both product sales revenue and adding service revenue.

Cost of revenue increased by $7,309,111 or 21% to $42,864,857 compared with cost of revenue of $35,555,746 in the same period in the prior year. Gross profit decreased by approximately $1.8 million compared to the same period in the previous form significant write-offs of inventory that was obsolete or unsellable. These products that were written off were primarily related to the recommerce business with many of them being Amazon returns or bulk products that could no longer be sold. 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 consolidate our operations and restructuring management is currently in process of.

Sales and marketing expenses increased by $95,410 or 10% compared with the same period in the previous year. The increase in sales and marketing expenses was primarily related to the increase in the Branded Products segment, although the trend of these expenses is declining and the increase was primarily during the first two quarters of the year. Management will continue to manage the sales and marketing expenses on branded product sales and expects the overall sales and marketing to revenue to decrease and improve profitability.

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Distribution costs decreased $493,625 or 6% compared with the same period in the previous year. Distribution costs are expected to continue to decrease as the consolidation efforts are completed and these operational improvements are expected to improve the Company’s profitability in fiscal year 2025. Management will continue its efforts to consolidate and streamline our distribution network and decrease the costs as a percentage of revenue.

General and administrative expenses decreased by $121,858 or 2% compared with the same period in the previous year. As the Company has consolidated the acquisitions and adjusted for the sale of Infusionz and Interactive Offers, management has controlled 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 decreased by $1,430,571 or 22% compared with the same period in the previous year. These expenses are primarily non-cash and decreased based on the lower amortization of stock compensation offset by increases in depreciation.

During the nine months ended March 31, 2024, the Company had other expense of $2,612,617 compared to expense of $2,224,547 during the nine months ended March 31, 2023. .

In addition, during the nine months ended March 31, 2023, the Company recognized a gain on the sale of Interactive Offers, and an impairment on the Delray Beach facility, that was consolidated into the Tampa facility. These were offset by the gain on the lease settlement for the California facility and an income tax benefit. During the nine months ended March 31, 2024, the Company recognized a gain on the sale of Infusionz and select assets, which was later adjusted for lack of payment from the buyer and an income tax expense.

The Company had a net loss of $7,912,919 compared to $1,568,180 in the same period in the previous year. The decrease in net income is primarily related to the items mentioned above.

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.

### Liquidity and Capital Resources

#### Working Capital

|  | As of March 31, 2024 | As of June 30, 2023 |
| --- | ---: | ---: |
| Current assets | $16,839,850 | $25,455,714 |
| Current liabilities | 24,191,784 | 19,734,685 |
| Working capital | $(7,351,934) | $5,721,029 |

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#### Cash Flows

|  | Nine Months Ended March 31, 2024 | 2023 |
| --- | ---: | ---: |
| Cash flows provided by operating activities – continuing operations | $(2,847,126) | $2,043,674 |
| Cash flows used in investing activities – continuing operations | (400,721) | (1,166,148) |
| Cash flows used in financing activities – continuing operations | (558,877) | (6,836,829) |
| Cash flows used by operating activities – discontinued operations | (187,280) | (190,539) |
| 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 | $(3,994,004) | $(5,968,764) |

On March 31, 2024, the Company had cash of $498,287, a decrease of $3,994,004 from June 30, 2023.

Net cash from operating activities benefited from non-cash expenses of $4,911,405, a $2,413,987 decrease in accounts receivable, which were offset $2,775,503 paydown of accounts payable and accrued liabilities.

Net cash used in investing activities for the nine months ended March 31, 2024 was $400,721 and was primarily related to the $500,000 paid for the remaining 45% of Cygnet Online LLC and the acquisition of property and equipment, which was offset by the proceeds from the sale of interactive offers. The acquisition of property and equipment primarily related to equipment and leasehold improvement for the final phase of our consolidation strategy, which was completed in June 2024.

Net cash used by financing activities for the nine months ended March 31, 2024, was $558,877 compared to the use of $6,836,829 during the nine months ended March 31, 2023. The cash used in financing activities during the nine months ended March 31, 2024 related to the repayment of notes payable and acquisition notes payable and was offset by the Company’s line of credit.

For the nine months ended March 31, 2023 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.

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. There is a contract to sell this property that would repay this loan and provided approximately $1,350,000 of working capital.

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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 terminated the agreement with the noteholders. The Company also terminated the registration statement covering the senior secured notes payable.

On April 1, 2024, the Company entered into a lease agreement with MFA 2510 Merchant LLC. The lease is a for approximately 10,000 square feet of warehouse and office space, located in Odessa, Florida for $20,060 per month on a triple net basis. The initial term is five years. The estimated cost of this facility is a reduction of overall facility costs of approximately $220,000 in rent and approximately $138,000 per year in utilities, repairs and maintenance. Management also expects to have additional savings in labor and administrative costs, which is expected to add additional cash flow for fiscal year 2025.

On May 28, 2024, the Company entered into an agreement to sell its Clearwater warehouse for a sale price of 4,300,000. The Company expects to receive approximately $1,350,000 after repayment of the mortgage and transaction expenses. The $1,350,000 will be used for working capital and the repayment of other outstanding debts. The transaction is expected to close on or around July 8, 2024.

On June 13, 2024, Upexi, Inc. (the “Company”) entered into a Stock Purchase Agreement (“SPA”) pursuant to which the Company sold one hundred percent (100%) of the issued and outstanding equity (the “Interests”) of its wholly owned subsidiary VitaMedica, Inc. to three investors (the “Buyers”). One of the minority Interest Buyers is Allan Marshall, the Company’s Chief Executive Officers. The purchase price for the stock was Six Million Dollars ($6,000,000), subject to certain customary post-closing adjustments. In addition, the Buyers are obligated to pay the Company for services provided according to the Transition Services Agreement. The Company estimates the fees from these services provided to VitaMedica will be approximately $300,000 annually.

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.

### 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, 4,412 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 March 31, 2024 (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; 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.

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 March 31, 2024, 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 Jul 9, 2024.
Source: SEC EDGAR, the filing index for accession 0001477932-24-004117. Last ingested by Listed: Oct 24, 2026, 15:15 ET. No prices; not investment advice.