Upexi(UPXI) - 2026 Q2 - Quarterly Report

Treasury Strategy - The company has shifted its treasury strategy to hold digital currency assets, primarily focusing on Solana (SOL), to achieve higher yields on excess cash [183]. - Approximately 95% of the company's Solana treasury is currently staked, with plans to maintain or increase this percentage in the future [185]. - The staking program aims to generate returns by delegating SOL to multiple validators, reducing risk and maximizing yield [193]. - The company plans to utilize intelligent capital markets issuance, including equity and convertible debt, to acquire more Solana at discounted prices [191]. - The treasury strategy is expected to enhance shareholder value as the price of Solana may rise, increasing the value of the treasury [184]. - The company maintains a certain amount of liquid SOL and cash to meet current obligations, ensuring liquidity management [192]. - The company does not hedge its SOL holdings and has no plans to do so in the future [183]. - The treasury policy exclusively focuses on Solana, with no intention to allocate capital to other digital assets [183]. - The company maintains over 98% of its SOL treasury in cold wallets, ensuring enhanced security against potential risks [219]. - The company is onboarding a third qualified custodian as part of its risk management process to further mitigate treasury risks [222]. Financial Performance - Revenue for the three months ended December 31, 2025, was $2,908,527, a decline of approximately $1.1 million or 27.4% compared to the same period last year [238]. - Digital asset revenue increased by approximately $5.1 million compared to the same period last year, driven by investments in digital assets and staking revenue [239]. - Cost of revenue increased by approximately $0.3 million or 30%, resulting in a gross margin of approximately 53.9%, down from 74.3% in the prior year [240]. - General and administrative expenses rose by approximately $4.0 million or 257%, primarily due to changes in business strategy and increased public company expenses [243]. - Unrealized losses on digital assets increased by approximately $164.5 million, reflecting the company's investments in digital assets [244]. - Net loss for the six months ended December 31, 2025, was $(112,176,808), a significant increase compared to $(2,926,887) in the same period last year [249]. - Cash flows used in operating activities were $(12,461,887) for the six months ended December 31, 2025, compared to $(3,358,636) for the same period last year [260]. - The company had current assets of $171,250,451 and current liabilities of $77,852,422 as of December 31, 2025, resulting in working capital of $93,398,029 [259]. - Other operating expenses increased by approximately $15.1 million or 2,247%, largely due to increased stock-based compensation [257]. - The company expects to have sufficient working capital to fund operations over the next twelve months and has a shelf registration statement effective January 8, 2026 [263]. Asset Management - The Asset Manager is entitled to an asset-based fee of 1.75% per annum on the assets under management, calculated and paid monthly [230]. - The company has entered into a Custodial Services Agreement with BitGo for digital asset storage, with a monthly fee based on the market value of assets in storage plus $500 [214]. - The Asset Management Agreement with GSR Strategies LLC is set to last until April 23, 2045, unless terminated earlier under specific conditions [232]. - The company disputes allegations of default under the Asset Management Agreement and has initiated arbitration proceedings against the Asset Manager [234]. Staking and Network Details - Staking rewards are distributed based on the proportion of stake relative to the total active stake in the network, influenced by validator performance and network conditions [208]. - Solana's staking yield comprises inflationary rewards, transaction fees, and maximal extractable value (MEV), with historical transaction fees now fully allocated to validators [225]. - The Solana network's transaction fees are fixed at 0.000005 SOL per transaction, plus a variable fee based on computation resources used [204]. - The total supply of SOL is 606.5 million, with a circulating supply of 538.2 million, and inflationary rewards currently at 4.3%, set to decrease by 15% every epoch-year until reaching a floor of 1.5% [225].