Quarterly Report for Quarter Ending September 30, 2026 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations

General Overview

As used in this quarterly report unless otherwise indicated, the terms "we", "us", "our", "Upexi", and the "Company" mean Upexi, Inc., a Delaware corporation, originally formed as a Nevada corporation in September of 2018. The Company conducts its operations through its subsidiaries, which may change from time to time as a result of acquisitions, dispositions, and other corporate activities.

Operating Segments

The Company operates as one operating and reportable segment that includes its digital asset treasury activities and consumer products operations.

DESCRIPTION OF BUSINESS

Our Company

We are in the cryptocurrency industry and the management of cash assets through a cryptocurrency portfolio, primarily focused on Solana tokens and generating a yield from the treasury, primarily through staking of those tokens. We continue to be brand owners, selling our products wholesale and direct to consumers. Distribution and fulfillment of our products is done by a third-party specializing in these services.

Critical Accounting Estimates

There have been no material changes to our critical accounting policies as disclosed in "Management's Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies and Estimates" in our Annual Report on Form 10-K for the year ended June 30, 2026.

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, 2026 and 2025, which are included herein.

Revenue declined by approximately $2.7 million, or 86.3%, as compared with the same period last year, primarily due to the Company's shift away from legacy health, wellness and other consumer-product lines and the exit of certain manufacturing and distribution operations. Management's focus is on the digital asset strategy and resources are allocated accordingly. We do not expect significant increases in revenue from these sources in future quarters.

Digital asset revenue decreased by approximately $3.0 million as compared with the same period last year, primarily due to lower SOL token prices during the current period. The Company earns staking revenue by delegating its digital assets to third-party validators on proof-of-stake blockchain networks. Digital asset revenue in future periods is expected to fluctuate based on the number of SOL tokens held and staked, SOL token prices, and staking reward rates.

Cost of revenue decreased by approximately $0.9 million, or 90.7%, as compared with the same period last year. The gross margin on product revenue, excluding digital asset revenue, was approximately 79.4% and 69.7% for the three months ended September 30, 2026 and 2025, respectively, an increase of approximately 9.7%, as compared with the same period last year, mainly due to the elimination of the manufacturing and distribution operations.

Sales and marketing expenses decreased by approximately $0.8 million, or 73.0%, as compared with the same period last year. Management expects the sales and marketing expenses to significantly decline, quarter over quarter for the remainder of the year as less marketing expenses are spent on the remaining products and several of the fixed sales and marketing expenses have been eliminated.

Distribution costs decreased by approximately $0.7 million, or 83.4%, as compared with the same period last year. The decrease in distribution costs was primarily related to the overall decline in revenue and distribution costs are expected to continue to decline for the remainder of the year.

General and administrative expenses decreased approximately $2.2 million, or 23.8%, as compared with the same period last year. The decrease was primarily due to the $1.8 million decrease in public company expenses, $1.6 million decrease in digital asset treasury expenses, $0.5 million decrease in travel expenses, partially offset by $1.9 million increase in legal expenses. Excluding legal expenses, management expects general and administrative expenses in subsequent quarters to remain relatively consistent with first quarter levels. Management also expects legal expenses to remain elevated through March 31, 2027, then decline and stabilize at less than $250,000 per quarter.

Unrealized gain on digital assets increased by approximately $24.0 million as compared with the same period last year. These gains reflect changes in the fair value of the Company's SOL holdings during each period and are affected by SOL token price movements and the quantity and timing of holdings.

Realized losses on digital asset revenue converted into USD increased by approximately $0.2 million as the Company began its investments in digital assets toward the end of fiscal year 2025 and there was no staking revenue converted into USD in the prior period. The losses were a result of the price changes on SOL from the period the digital assets were recorded as staking revenue and the price the staking revenue was converted into USD during the three months ended September 30, 2026. The digital asset sales are recorded on a first in first out basis.

Realized loss on sale of digital assets increased by approximately $1.5 million as the Company began its investments in digital assets toward the end of fiscal year 2025 and there were no digital assets sold in the prior period.

Stock-based compensation decreased by approximately $1.9 million as compared with the same period last year. The decrease was primarily due to a $1.8 million decrease in expense related to restricted stock units and a $0.3 million decrease in expense related to warrants granted to the asset manager, partially offset by the increase in nonemployee advisory fee of $0.3 million.

Other operating expenses decreased by approximately $0.1 million as compared with the same period last year. The decrease was primarily due to lower depreciation expense following the disposal of fixed assets associated with businesses disposed of during fiscal year 2026.

Other expenses increased by approximately $0.8 million as compared with the same period last year. The increase was primarily due to increased debt used in the purchase of SOL for the digital asset treasury. In September 2026, the Company negotiated a reduction in the interest rate on its BitGo borrowings from 11.5% to 7.5% per annum. Management expects this reduction to lower annual interest expense by approximately $2.3 million, based on the $57.3 million outstanding as of September 30, 2026, assuming the outstanding principal balance and interest rate remain unchanged.

Liquidity and Capital Resources

Working Capital

Cash Flows

On September 30, 2026, the Company had cash of approximately $6.4 million, an increase of approximately $0.6 million from June 30, 2026. The primary changes resulted from financing obtained to implement and grow the Company's digital asset strategy.

Net cash flows used in operating activities were approximately $8.2 million for the three months ended September 30, 2026, as compared to net cash flows used in operating activities of approximately $9.8 million for the three months ended September 30, 2025. The approximately $89.1 million net income was offset by approximately $102.0 million in unrealized gain on digital assets, and net digital asset revenue not converted to USD of approximately $1.0 million, partially offset by $6.6 million of other noncash addbacks. The changes in assets and liabilities used approximately $0.8 million. Various costs were incurred in connection with beginning, implementing, and growing the Company's digital asset strategy and are expected to continue.

Net cash flows used in investing activities were approximately $0.9 million for the three months ended September 30, 2026, as compared to net cash flows used in investing activities of approximately $30.3 million for the three months ended September 30, 2025. The primary use of funds was on the acquisitions of SOL for the digital assets treasury during the three months ended September 30, 2026.

Net cash flows provided by financing activities were approximately $9.8 million for the three months ended September 30, 2026, as compared to net cash flows provided by financing activities of approximately $39.4 million for the three months ended September 30, 2025. The decrease primarily reflected a $39.9 million reduction in proceeds from common stock issuances, partially offset by a $10.3 million decrease in payments of equity and debt issuance costs.

Liquidity of SOL Management

The Company purchases locked Solana that cannot be purchased or sold on the normal market exchanges and is purchased and sold through negotiations directly with the owner of the locked Solana or their agent. The locked Solana is unlocked through a schedule that will continue through January of 2028 and once unlocked is the same as any other liquid Solana in the Company's treasury. Since this locked Solana could create significant delays if the Company needed liquidity, management monitors the overall percentage of the digital assets that are locked or do not have the normal liquidity as other digital assets.

As of September 30, 2026, the Company held 714,833 tokens subject to lock up restrictions. The following table summarizes the unlocking schedule of these Solana tokens:

The Company's staking program involves the temporary loss of the ability to transfer, assign a new validator or otherwise dispose of the SOL. Under normal conditions, the Company will regain complete control over its unstaked SOL within two days of initiating the unstaking. However, there can be no guarantee that such process will result in the Company regaining complete control of its SOL in time to satisfy its current obligations. We maintain a certain amount of liquid SOL in the treasury and a certain amount of cash to ensure that the Company is able to satisfy its current obligations.

As of September 30, 2026, the Company had a working capital deficit of approximately $11.4 million. Current liabilities included approximately $147.0 million representing the net carrying amount of convertible notes whose principal is settleable on a noncash basis under the terms of the agreements. As a result, the working capital deficit does not represent an equivalent cash funding requirement.

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.

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.