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 ) $ 2,927,926The 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 As of
December 31, June 30,
2022 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.
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UPEXI, INC. 
