Item 7. Management’s Discussion and Analysis
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition, results of operations and cash flows should be read in conjunction with the consolidated financial statements and the related notes thereto included elsewhere in this Annual Report on Form 10-K. The last day of our fiscal year is June 30. Our fiscal quarters end on September 30, December 31, March 31 and June 30. This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors” or in other parts of this Annual Report on Form 10-K. See also “Cautionary Note Regarding Forward-Looking Statements” above.
Overview
We are in the cryptocurrency industry and the management of cash assets through a cryptocurrency portfolio, primarily focused in Solana tokens and staking of those tokens. We continue to be a brand owner specializing in the development, manufacturing, and distribution of consumer products.
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Our Solana Treasury Strategy
Early in 2025, we updated and modified our cash management and treasury strategy to include holding digital currency assets directly on our balance sheet. This was a shift from before when we held excess cash primarily in FDIC-insured interest-bearing accounts. The change to adopt this strategy results from our intention to obtain the highest yield on excess cash. Under our new approach, our treasury policy focuses primarily on Solana (“SOL”). The approach involves applying a public-market treasury model to an asset that is considered earlier in its lifecycle than, with respect to both development and usage, as well as institutional adoption, Bitcoin. Management will focus its resources to this digital asset strategy and a significant portion of the balance sheet will be allocated to holding Solana in the Company’s digital asset treasury.
Key Factors Affecting Operating Results
Cyclicality and Seasonality
Our business is typically unaffected by seasonality.
Operating Segments
The Company’s financial reporting is organized into a single segment that includes production, sales and distribution of branded products, following the sale of E-Core, Technology Inc. and its subsidiaries. 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 or directly support the Company’s single segment.
Results of Operations
Year Ended June 30, 2025, as compared to June 30, 2024:
The following summary of our results of operations should be read in conjunction with our consolidated financial statements for the years ended June 30, 2025, and 2024, which are included herein.
June,
2025
2024
Change
Revenue
$ 14,826,336
$ 26,000,652
$ (11,174,316 )
Digital asset revenue
$ 985,009
$ -
$ 985,009
Product costs
$ 4,943,305
$ 13,176,073
$ (8,232,768 )
Distribution costs
$ 4,691,964
$ 8,611,702
$ (3,919,738 )
Sales and marketing expenses
$ 4,001,094
$ 5,989,727
$ (1,988,633 )
General and administrative expenses
$ 11,935,582
$ 6,771,937
$ 5,163,645
Unrealized and realized (gain) loss on digital assets
$ (105,474 )
$ -
$ (105,474 )
Other operating expenses
$ 3,114,620
$ 4,848,629
$ (1,734,009 )
Other (expense)
$ (1,184,457 )
$ (3,141,166 )
$ 1,956,709
Impairment of intangible assets and goodwill
$ -
$ 7,869,425
$ (7,869,425 )
Lease (gain on sale) impairment
$ (269,994 )
$ 289,969
$ (559,963 )
(Gain) on the sale of assets and businesses
$ -
$ (448,882 )
$ 448,882
Income from discontinued operations
$ -
$ 1,164,184
$ (1,164,184 )
Net loss attributable to Upexi, Inc.
$ (13,684,209 )
$ (23,658,438 )
$ 9,974,229
Revenues decreased by $11,174,316, or 43%, for the fiscal year ended June 30, 2025, compared with the fiscal year ended June 30, 2024. The Company divested from the recommerce business to focus primarily on brands that are owned or products that the Company produces as white label products for the brand owner. The elimination of the recommerce business decreased sales by approximately $9,787,000, or 85%, of the decline in sales compared to the prior year. The Company had revenue of approximately $985,000 from the newly implemented treasury strategy. This digital asset treasury was established in May of 2025 and management expects the revenue generated from the treasury to significantly increase in fiscal year 2026.
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Product costs decreased by $8,232,768, or 62%, compared with the fiscal year ended June 30, 2024. The two primary reasons for the decrease in products costs were the overall lower sales and the elimination of the lower margin recommerce business. In addition, in the prior year there were significant inventory write offs and other non-cash expenses in the product costs that decreased the overall gross profit compared to the current year’s gross profit.
Gross profit decreased by approximately $2,942,000, or approximately 22.9% compared with the prior year, excluding the increase in gross profit related to the $985,000 of digital asset revenue. The profit margin increased to approximately 67% of revenue compared to 49% of revenue in the prior year, excluding the digital asset revenue. Management’s focus in fiscal year 2026 is on improving the overall gross profit and the profit margin of the business and increasing the revenue from our digital asset treasury.
Sales and marketing expenses decreased by approximately $1,988,000, or 33%, compared with the same period last year. We have decreased the number of fixed costs in our marketing budget and focused our advertising expenditures. The percentage of sales and marketing to the total sales will increase based on our elimination of the recommerce business, however with the elimination of many fixed expenditures, the changes should align with the overall total sales.
Distribution costs decreased by approximately $3,920,000 or 46%, compared with the fiscal year ended June 30, 2024. The strategic change and divesture of the two businesses in 2024, along with the consolidation of operations to Florida reduced the Amazon fees by approximately $2,668,000, reduced the facility expenses by approximately $255,000 and the labor costs by approximately $743,000. The remaining product sales do not rely on the Amazon distribution network and are distributed from one facility in Florida.
General and administrative expenses increased by approximately $5,163,645, or 76%, compared with the same period last year. Over 75% of the increase was related to these three factors: 1) approximately $2,668,000 of additional expense in corporate compensation; 2) approximately $576,000 in additional professional services fees, including legal, audit and tax services; and 3) approximately $686,000 of additional public company expenses. Our overall general and administrative expenses are expected to increase over the next year and then stabilize as we implement this overall treasury and business strategy. Our continuous capital raising efforts and professional and public company expenses necessary to drive this strategy is significantly more than what the Company has required in the past.
Other operating expenses decreased by approximately $1,734,000, or 36%, compared with the same period last year. These expenses are primarily non-cash expense for amortization of stock compensation, amortization of acquired intangible assets and depreciation. The decrease in the amortization of acquired intangible assets was approximately $2,334,000 as approximately $7,869,000 was impaired in the prior year. Depreciation expense declined by approximately $587,000. These expenses were partially offset by approximately $1,187,000 of additional share-based compensation expense.
Our realized and unrealized gains was approximately $105,474 with none in the same period last year. The price of Solana on June 30, 2025 was $154.74, as quoted on coinmarketcap.com and is the approximate cost basis of our Solana treasury at June 30, 2025.
Other expense decreased by approximately $1,957,000 or 63%, as compared with the same period last year, which primarily relates to the continued decrease in interest expense from payoffs of debts.
The Company recognized an impairment $289,969 on the Delray Beach warehouse during the year ended June 30, 2024 as part of closing the warehouse and the Company exiting the recommerce business. This liability was settled in January of 2025 and resulted in a gain on the lease impairment of approximately $270,000.
In the prior year, the Company recognized a gain on the sale of assets and businesses of approximately $449,000. This gain was from approximately $1,948,538 gain on the sale of VitaMedica, the gain of approximately $238,000 on the sale of Infusionz and CBD related assets, which recorded an approximate loss of $2,186,000 in the prior year. This gain was offset by the loss of approximately $1,737,326 on the sale of E-Core.
The income and loss on discontinued operations was as follows:
June 30,
2025
June 30,
2024
Interactive Offers
$ -
$ (187,003 )
Infusionz
-
71,976
E-Core
-
1,065,575
VitaMedica
-
213,636
$ -
$ 1,164,184
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The Company had a net loss of approximately $13,684,000 compared to a net loss of approximately $23,658,000 in the prior year. The decrease in the net losses primarily related to the above-mentioned changes.
Liquidity, Capital Resources and Cash Requirements
Working Capital
As of
June 30, 2025
As of
June 30, 2024
Current assets
$ 56,778,043
$ 11,419,918
Current liabilities
$ 32,563,906
$ 12,655,152
Working capital
$ 24,214,137
$ (1,235,234 )
Cash Flows
Years Ended June 30,
2025
2024
Cash flows (used in) operating activities – continuing operations
$ (8,423,042 )
$ (4,894,751 )
Cash flows (used in) provided by investing activities – continuing operations
(99,293,083 )
831,112
Cash flows provided by (used in) financing activities – continuing operations
110,029,860
(353,789 )
Cash flows provided by operating activities – discontinued operations
-
4,793,374
Cash flows used by investing activities – discontinued operations
-
(4,206,823 )
Cash flows used by financing activities – discontinued operations
-
-
Net increase (decrease) in cash during the period
$ 2,313,735
$ (3,830,877 )
On June 30, 2025, the Company had cash of $2,975,150, or an increase of approximately $2,314,000, from June 30, 2024. The increase in cash was due to significant capital raised during the period and offset by the net loss from operations and capital investments in Solana for the digital asset treasury. The significant increase in working capital is a result of the liquid SOL held by the Company in its digital asset treasury.
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The net cash used by continuing operating activities was approximately $8,423,000. The net loss of approximately $13,684,000 was offset by the non-cash expenses of approximately $758,000 for depreciation and amortization, $2,357,000 for stock-based compensation and issuance of common stock for services rendered by consultants, and the write off of inventory and credit losses relating to Amazon of approximately $1,682,824. The change in operating assets and liabilities provided cash of approximately $1,931,000. The digital asset revenue and unrealized gains and losses from the digital asset treasury is non-cash as the value was from staking revenue paid in additional Solana and the increase in market value over the purchase price for the Solana held in the digital asset treasury.
Net cash used in investing activities for the years ended June 30, 2025 and 2024 was approximately $99,293,000 and use of $3,376,000, respectively. The most significant use of cash in investing activities was the purchase of Solana for the Company’s digital asset treasury. This was offset by the collection of the purchase price in the sale of E-core and the proceeds from the sale of the building.
Net cash flows provided by financing activities for the year ended June 30, 2025 was approximately $110,030,000 compared to approximately $354,000 used during the year ended June 30, 2024. During the year ended June 30, 2025, the Company raised approximately $92,556,000 from the sale of the Company’s common stock and obtained a short-term loan of $20,000,000 that is collateralized by certain assets of the digital asset treasury. This was offset by the payment of debt and other common stock issued for the exercise of warrants or the issuance of convertible debt that was subsequently converted into common stock.
On April 1, 2024, the Company entered into a lease agreement with MFA 2510 Merchant LLC. The lease is 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 $240,000 in rent and approximately $138,000 per year in utilities, repairs and maintenance.
On May 28, 2024, the Company entered into an agreement to sell its Clearwater, Florida warehouse for a sale price of $4,300,000. The sale of the building was completed on July 8, 2024 and provided $1,370,978 of working capital.
On June 13, 2024, the Company sold all of the issued and outstanding equity of VitaMedica, Inc. to three investors. One of the minority interest buyers is Allan Marshall, the Company’s Chief Executive Officers. The purchase price for the stock was $6,000,000, subject to certain customary post-closing adjustments. The net cash provided from the sale was $2,100,000, reduced liabilities of $1,900,000, a loan for $1,000,000 and a final $1,000,000 payment subject to certain inventory and working capital adjustments.
On August 1, 2024, the Company sold all of outstanding stock of E-Core Technology, Inc., a Florida corporation (d/b/a New England Technology, Inc.) (“E-core”), to E-Core Holdings, LLC, a Florida limited liability company pursuant to the terms of an Agreement to Unwind Securities Purchase Agreement dated July 31, 2024 and effective June 30, 2024. The principals of the Buyer are the three individuals from whom the Company acquired E-core in October 2022. The purchase price in the transaction was $2,000,000 paid by the Buyer to the Company at closing and will be used for working capital.
On March 7, 2025 the Company closed on $350,000 of convertible debt with a term of two years and an interest rate of 3%. The debt was convertible into 116,118 shares of the Company’s common stock or $3.00 per share and was converted in June of 2025. The convertible debt included warrants to purchase up to 116,118 shares of the Company’s common stock at a per share price of $3.00 per common share or for $350,000. Warrants for $250,000 or 83,334 shares of common stock were exercised. The Company received approximately $600,000 during the year related to the convertible debt and the exercised warrants.
On April 24, 2025 the Company closed on a private placement offering to sell 35,970,383 shares of the Company’s common stock at an offering price of $2.28 per share and pre-funded warrants to purchase 7,889,266 shares of common stock at an offering price of $2.279 per share of the Company’s common stock that may be exercised at a per share price of $0.0001. The Company received approximately $92,556,000, net of broker fees, legal fees and other expenses incurred for the private placement. Since June 30, 2025, all of the pre-funded warrants have been exercised and the 7,889,266 shares of common stock issued.
On May 23, 2023, The Company entered into a credit facility with BitGo Prime, LLC (“BitGo”). Pursuant to a Master Loan Agreement (the “Agreement”) the Company may borrow up to $20,000,000 of Digital Currency or United States Dollars with interest at the rate of 11.5% per year. The term of the credit facility is for one year and is renewable for successive one year options. Each individual loan under the facility is negotiable as to the amount, term prepayment or recall (payment demand). The loans shall be collateralized by the Company’s treasury assets, already held at BitGo, the initial availability is based on 260% collateral level and a margin call level of 175%. There are no requirements or fees for non-use of the credit facility and the facility can be increased in the future based on the value of the assets BitGo is the custodian of for the Company. At June 30,2025, the outstanding balance of the credit facility was $20,000,000. Subsequent to June 30, 2025 the credit facility increased to $50,000,000. The $50,000,000 credit facility is outstanding as of the date of this report and was used for the purchase of Solana.
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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.
The Company has 421,451 tokens that are considered locked at June 30, 2025. The following table summarizes the unlocking schedule of Solana tokens currently locked as of June 30, 2025, valued at $133.07 or a 14% discount to the closing price of $154.74:
June 30, 2026
$ 21,430,177
161,041
June 30, 2027
20,819,592
156,453
June 30, 2028
13,833,756
103,957
$ 56,083,525
421,451
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.
Subsequent to June 30, 2025
On July 11, 2025 the Company closed on a private placement offering to sell 12,457,186 shares of the Company’s common stock at an offering price of $4.00 per share. The Company received approximately $37,077,000, net of broker fees, the fees on the convertible debt offering completed on July 16, 2025, legal fees, filing fees and other expenses incurred for the private placement.
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 consolidated financial statements and meet all of our debt obligations.
Off-Balance Sheet Arrangements
The Company has no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on its financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders.
Critical Accounting Policies and Estimates
Preparation of financial statements requires the application of accounting policies, judgments, assumptions and estimates that can significantly affect the reported results of operations, cash flows or the amounts of assets and liabilities recognized in the financial statements. Judgments made include those related to accounting for revenue recognition and realizability of deferred tax assets.
Management discusses these policies, estimates and assumptions with senior members of management on a regular basis and provides periodic updates on management decisions to the Audit Committee. Management believes the areas described below require significant judgment in the application of accounting policy or in making estimates and assumptions that are inherently uncertain and that may change in subsequent periods.
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For further information, see Note 2 to the Consolidated Financial Statements, “Significant Accounting Policies.”
Revenue Recognition - In accordance with ASC No. 606, Revenue from Contracts with Customers, the Company recognizes revenue when we satisfy performance obligations as evidenced by the transfer of control of our products or services to customers. In general, the Company generates revenue from product sales, either directly to customers or to distributors. In determining whether a contract exists, we evaluate the terms of the agreement, the relationship with the customer or distributor and their ability to pay.
The Company recognizes revenue from sales of our products, including sales to our distributors, at a point in time, generally upon shipment or delivery to the customer or distributor, depending upon the terms of the sales order. Control is considered transferred when title and risk of loss pass, when the customer becomes obligated to pay and, where applicable, when the customer has accepted the products or upon expiration of the acceptance period. For sales to distributors, payment is due on our standard commercial terms and is not contingent upon the distributors’ resale of the products.
Shipping and handling fees billed to customers are included in revenue. Shipping and handling fees associated with inbound freight, are generally included in cost of revenue.
Our business is subject to contingencies related to customer orders, including:
Right of Return:
A large portion of our revenue comes from the sale of consumable products, which are sold in high-volume and low quantities, and are generally maintained at stock levels of less than ninety days in our facility. Customer returns have historically represented a very small percentage of sales on an annual basis. Other product sales relate to some pet products, including small mechanical devices.
Warranties:
The Company does not accept sales returns from wholesale customers, as the products are pre-approved prior to production and shipment. E-Commerce product returns must be completed within 45 days of the date of purchase. The Company accrues an allowance for refunds, returned deposits and discounts given by customer services post shipment of the product based on historical experience and management’s estimate of future expenses, including replacement, freight charges and other fulfilment expenses.
Staking Revenue:
The recognition of staking revenue from delegated digital assets represents a critical accounting estimate due to the complexity and evolving nature of blockchain protocols and regulatory guidance. As a delegator, the Company earns staking rewards by participating in proof-of-stake networks through third-party validators, without directly operating the nodes. Revenue is recognized when control of the staking rewards is obtained, typically upon receipt into the Company’s wallet, and measured at fair value using quoted market prices at the time of receipt. Management must assess the reliability of validator performance, the timing and frequency of reward distributions, and potential slashing risks that could impact future earnings. Additionally, the Company evaluates whether staking rewards meet the criteria for revenue recognition under applicable accounting standards, including considerations of principal versus agent relationships. Changes in protocol rules, validator reliability, or regulatory developments may materially affect the timing and amount of staking revenue recognized.
Income taxes - The assessment of the realizability of deferred tax assets is a critical accounting estimate that requires significant judgment and evaluation of both positive and negative evidence. Deferred tax assets arise primarily from temporary differences, net operating losses, and tax credit carryforwards, and their recoverability depends on the Company’s ability to generate sufficient future taxable income. Management must consider all available information, including historical earnings, projected future income, tax planning strategies, and the expiration dates of carryforwards. If it is more likely than not that some portion or all of the deferred tax assets will not be realized, a valuation allowance is recorded to reduce the asset to the amount expected to be recoverable. Changes in assumptions or actual results that differ from expectations may result in significant adjustments to the valuation allowance and income tax expense.
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Recent Accounting Pronouncements
Refer to Note 2 – Significant Accounting Policies to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K for recently adopted accounting pronouncements and recently issued accounting pronouncements not yet adopted as of this date of this Annual Report on Form 10-K.
Reverse Stock Split
On September 18, 2024, we filed a Certificate of Change with the Nevada Secretary of State to effect a reverse stock split of our common stock at a rate of 1-for-20 (the “Reverse Stock Split”), which became effective as of October 3, 2024 (the “Effective Date”). The Reverse Stock Split was approved by the board of directors in accordance with Nevada law. The Reverse Stock Split did not have any impact on the par value of common stock.
On the Effective Date, every twenty shares of Common Stock issued and outstanding were automatically combined into one share of Common Stock, without any change in the par value per share. As the per-share par value did not change, we reclassified $19,860 from Common Stock to Additional Paid-in-Capital on the Effective Date. The exercise prices and the number of shares issuable upon exercise of outstanding stock options, equity awards and warrants, and the number of shares available for future issuance under the equity incentive plans were adjusted in accordance with their respective terms. The Reverse Stock Split affected all stockholders uniformly and did not alter any stockholder’s percentage interest in our Common Stock. We did not issue any fractional shares in connection with the Reverse Stock Split. Instead, fractional shares were initially rounded up to the next largest whole number, resulting in the issuance of 8 shares on October 3, 2024 the Effective Date and an additional issuance of 38 shares on October 8, 2024. On October 10, 2024, the transfer agent received additional requests to issue a total of 202,183 shares of common stock for round up of fractional shares. These shares were issued on October 23, 2024 and on October 30, 2024 we were notified that the shares were returned to the Company’s transfer agent. Although the Company did receive the common stock back after issuance, the potential dilution remains a risk, and is the subject of a complaint filed by the Company in the United States District Court for the District of Nevada with the purpose of eliminating any said risk. The Reverse Stock Split did not modify the relative rights or preferences of the Common Stock.
Unless otherwise indicated, all issued and outstanding shares of common stock and all outstanding securities entitling their holders to purchase shares of our common stock or acquire shares of our common stock, including stock options, restricted stock units, and warrants per share data, share prices and exercise prices, as required by the terms of those securities, have been adjusted retroactively to reflect the Reverse Stock Split.
On October 17, 2024, Company received written notice (the “Compliance Notice”) from The Nasdaq Stock Market LLC (“Nasdaq”) informing the Company that it had regained compliance with Nasdaq Listing Rule 5550(a)(2), which requires that companies listed on the Nasdaq Stock Market maintain a minimum bid price of $1.00 per share. Nasdaq notified the Company in the Compliance Notice that, from October 3, 2024 to October 16, 2024, the closing bid price of the Company’s common stock had been $1.00 per share or greater and, accordingly, the Company had regained compliance with Nasdaq Listing Rule 5550(a)(2) and that the matter was now closed.