UPEXI INC

Previous wording

For the three and six months ended December 31, 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; 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

Current wording

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

Previous wording

For the six months ended December 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 six months ended December 31, 2023.

Current wording

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.

Previous wording

For the three months ended December 31, 2023 and December 31, 2022, the share-based compensation of $330,548 and $1,052,847, respectively was allocated to the Branded Product segment. For the six months ended December 31, 2023 and December 31, 2022, the share-based compensation of $752,471 and 1,980,173, respectively was allocated to the Branded Product segment.

Current wording

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.

Previous wording

Revenues decreased by $4,913,735 or 18% to $21,827,827 compared with revenue of $26,741,562 in the same period last year. The revenue decline was primarily the result of lower recommerce revenue through both Amazon channels and wholesale. There were certain wholesale deals not completed at the end of the period that resulted in both a buildup of inventory and lower sales for the period ended December 31, 2023. Branded Product sales increased in the health and beauty product categories with a slight decline in both the pet care and children’s toy product categories, primarily from lower than expected sales in the Amazon sales channel. Management will continue to focus on the development and growth of the high gross margin Branded Product sales.

Current wording

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.

Previous wording

Sales and marketing expenses decreased by $605,776 or 18% 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 strategically increase the sales and marketing budget for our direct to consumer sales channels as the Company seeks to capitalize on an opportunity to take advantage of lower costs to estimated lifetime 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 over time as a percentage of sales in the following quarters, which will increase our overall profitability.

Current wording

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.

Previous wording

General and administrative expenses decreased by $214,431 or 9% compared with the same period in the prior year. As the Company has consolidated the acquisitions and adjusted for the sale of 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.

Current wording

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.

Previous wording

Other operating expenses decreased by $580,329 or 24% compared with the same period in the prior year. These expenses are primarily non-cash and decreased based on the decreased amortization of stock compensation and offset by slight increases in intangible assets amortization and depreciation.

Current wording

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.

Previous wording

Six Months Ended December 31, 2023, Compared to Six Months Ended December 31, 2022

Current wording

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

Previous wording

Cost of revenue decreased by $3,098,543 or 19% to $13,556,574 compared with cost of revenue of $16,655,117 in the same period last year. The cost of revenue decline was primarily related to the lower recommerce revenue. Gross profit decreased by approximately $1.8 million compared to the same period in the previous 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.

Current wording

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.

Previous wording

Distribution costs increased $34,791 or 1% compared with the same period in the previous year. Although the distribution costs increased during the period compared to the same period in the previous year, as a percentage of overall revenue, the distribution costs decreased over 3.5%. Management will continue its efforts to consolidate and streamline our distribution network and decrease the costs as a percentage of revenue.

Current wording

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.

Previous wording

General and administrative expenses decreased by $86,349 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.

Current wording

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.

Previous wording

Other operating expenses decreased by $537,269 or 12% 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 intangible assets amortization and depreciation.

Current wording

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.

Previous wording

During the six months ended December 31, 2023, the Company had other expense of $1,951,269 compared to expense of $2,224,547 during the six months ended December 31, 2022. The decrease was primarily related to the termination interest expense with the early repayment of the senior secured convertible note payable obtained in June of 2022 and the $726,800 of non-cash amortization of imputed interest on acquisition notes payable.

Current wording

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. .

Previous wording

In addition, during the six months ended December 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 six months ended December 31, 2022, 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.

Current wording

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.

Previous wording

The Company had a net loss of $3,794,307 compared to net income of $72,164 in the same period in the previous year. The decrease in net income is primarily related to the items mentioned above.

Current wording

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.

Previous wording

On December 31, 2023, the Company had cash of $1,844,420, a decrease of $2,647,871 from June 30, 2023.

Current wording

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

Previous wording

Net cash from operating activities benefited from non-cash expenses of $3,813,681 and decreased accounts receivable of $1,943,520, which were offset by increased inventory and paydown of accounts payable and accrued liabilities.

Current wording

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.

Previous wording

Net cash used in investing activities for the six months ended December 31, 2023 was $902,864 and was primarily related to the $500,000 paid for the remaining 45% of Cygnet Online LLC and the acquisition of property and equipment. The acquisition of property and equipment primarily related to equipment and leasehold improvement for the final phase of our consolidation strategy.

Current wording

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.

Previous wording

Net cash provided by financing activities for the six months ended December 31, 2023, was $599,027 compared to the use of $9,464,945 during the six months ended December 31, 2022. The cash used in financing activities during the six months ended December 31, 2023 related to the repayment of notes payable and acquisition notes payable and was offset by the Company’s line of credit.

Current wording

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.

Previous wording

For the six months ended December 31, 2022 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.

Current wording

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.

Previous wording

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.

Current wording

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.