What changed in this filing

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Item 2. Management’s Discussion and Analysis

2026-02-12 compared with 2025-08-14 · 230 added, 279 removed, 39 unchanged (93% of the section changed)

5 unchanged sentences

The following discussion

and analysis compares our condensed consolidated results of operations for the three and nine months ended June 30, 2025 (the “2025

Quarter” and the “2025 Period”, respectively) with those for the three and nine months ended June 30, 2024 (the “2024

Quarter” and “2024 Period”, respectively).

All dollar amounts and percentages presented herein have been rounded

to approximate values.

and analysis compares our condensed consolidated results of operations for the three months ended December 31, 2025 (the “2026 Quarter”)

with those for the three months ended December 31, 2024 (the “2025 Quarter”).

All dollar amounts and percentages presented

herein have been rounded to approximate values.

Cautionary Note Regarding Forward-Looking

This report contains

“forward-looking statements” (as such term is defined in the Private Securities Litigation Reform Act of 1995).

These statements include, among other things, statements regarding our liquidity, plans on repaying outstanding debt obligations,

plans on utilizing the equity line of credit, plans for other financing as well as other statements regarding our future operations,

financial condition and prospects, and business strategies.

Forward-looking statements generally can be identified by words such as

“anticipates,” “believes,” “estimates,” “expects,” “intends,”

“plans,” “predicts,” “projects,” “will be,” “will continue,” “will

likely result,” and similar expressions.

These forward-looking statements are based on current expectations and assumptions

that are subject to risks and uncertainties, which could cause our actual results to differ materially from those reflected in the

forward-looking statements.

These risks include the inability to expand our customer base, loss of additional customers, pricing

pressures, lack of success of our marketing efforts, economic or other factors resulting in the failure to enter into purchase

agreements for the sale of equity, failure to raise capital when needed, the inability to maintain compliance with Nasdaq listing

standards, and the inability of our customers to pay for our services.

No assurance can be given that the actual results will be

consistent with the forward-looking statements.

Investors should read carefully the factors described in the “Risk

Factors” section of the Company’s filings with the SEC, including the Company’s Form 10-K for the year ended

September 30, 2024 for information regarding risk factors that could affect the Company’s results.

report contains forward-looking statements, including statements regarding our liquidity, our growth strategy, and our future business

Forward-looking statements can be identified by words such as “anticipates,” “intends,” “may,”

“potential,” “continues,” “plans,” “seeks,” “believes,” “estimates,”

“expects” and similar references to future periods.

Forward-looking

statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions.

forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are

difficult to predict.

Our actual results may differ materially from those contemplated by the forward-looking statements.

We caution you

therefore against relying on any of these forward-looking statements.

They are neither statements of historical fact nor guarantees or

assurances of future performance.

The results anticipated by any or all of these forward-looking statements might not occur.

factors that could cause actual results to differ materially from those in the forward-looking statements include:

(i) the rewards and

costs associated with staking or validating transactions;

(ii) regulatory issues related to our business model, including potential classification

of crypto assets as securities and changing regulatory frameworks;

(iii) fluctuations in the price of our crypto assets;

(iv) potential

decreases in the value of our crypto assets and rewards;

(v) competition, (vi) risks related to the loss or theft of private withdrawal

keys resulting in the complete loss of crypto assets and rewards;

(vii) failure to keep our Registration Statement on Form S-3 effective

and (viii) other risks and uncertainties described in our filings with the SEC, including our Form 10-K for the fiscal year ended September

Any forward-looking statement made by us speaks only as of the date on which it is made.

Factors or events that could cause

our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them.

We undertake no obligation

to revise or publicly release the results of any revision to these forward-looking statements, except as required by applicable law

or regulation.

Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking

Business Overview

Forward Industries, Inc.

is a global design company serving top tier medical and technology customers.

The Company provides

hardware and software product design and engineering services to customers predominantly located in the U.S.

In June 2024, the Company’s

stockholders authorized, and the Company’s Board of Directors approved, a 1-for-10 reverse stock split of our common stock, which became

effective on June 18, 2024.

Accordingly, all references made to share, per share, or common share amounts in the accompanying condensed

consolidated financial statements and applicable disclosures have been retroactively adjusted to reflect the reverse stock split.

to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as

may be required by law.

Background and Business

We are a Solana focused digital

asset treasury company, with the strategy to buy, hold, stake, trade, invest in, and grow SOL and SOL related digital assets, protocols

and businesses.

Our mission is to expand and strengthen the Solana ecosystem by acquiring and staking SOL and engaging with, providing

tools to and investing in the Solana protocol, Solana developers and Solana related projects in order to increase shareholder value.

connection with a private placement transaction in September 2025, we launched our digital asset treasury strategy, which we have been

executing to date by holding SOL, staking SOL, operating a SOL validator, engaging in the SOL decentralized finance (“DeFi”)

ecosystem and actively repurchasing shares of our common stock.

Under our new treasury policy

and strategy, the principal holding in our treasury reserve on the balance sheet will be allocated to digital assets, primarily SOL, fwdSOL

(a Liquid Staking Token, or “LST”, developed by the Company in collaboration with Socean Labs Inc., doing business as Sanctum,

on the Solana blockchain) and similar assets.

We have selected SOL as our primary treasury asset because we believe it is earlier in its

lifecycle, operationally superior, higher yield generating and underexposed as compared to Bitcoin and other digital assets, presenting

a unique opportunity for Forward to become the largest Solana asset treasury operator in the industry.

Our planned approach involves acquiring

SOL, staking our holdings via our own validator, deploying SOL into various DeFi protocols to earn yield, fees or rewards, lending SOL

to earn interest, pledging SOL as collateral to borrow other assets and generating revenue through strategic acquisitions, partnerships

and deployments within the Solana ecosystem.

Forward also operates an

engineering services business, which provides hardware and software product design and engineering services to customers predominantly

located in the U.S.

Discontinued Operations

In July 2023, we decided

to cease operations of our retail distribution segment (“Retail Exit”) and we are presenting the results of operations for

this segment within discontinued operations in the current and prior periods presented herein.

The discontinuation of the retail segment

represented a strategic shift in the Company’s business.

The primary assets of the retail segment were inventory and accounts receivable.

The Company sold, liquidated, or otherwise disposed of the remaining retail inventory and collected the remaining retail accounts receivable

by September 30, 2024, at which time the retail segment was considered fully discontinued.

We expect to have no further significant continuing

involvement with this segment.

The inventory of the retail segment met the criteria to be considered “held-for-sale” in accordance

with ASC 205-20, “Discontinued Operations.” Accordingly, the retail inventory was classified on our condensed consolidated

balance sheet as “discontinued assets held for sale” at September 30, 2023, and the results of operations for the retail segment

have been classified as “Discontinued Operations” on the condensed consolidated statements of operations for the three and

nine months ended June 30, 2025 and 2024.

In March 2025, in connection

with the fourth Conversion Agreement (see Note 8 to the condensed consolidated financial statements), Forward China determined it would

not renew the Buying Agency and Supply Agreement, which subsequently expired on May 9, 2025.

Without this agreement, the Company determined

it would not continue the OEM segment of the business and committed to a plan to sell the segment.

On May 16, 2025, the Company and Forward

US entered into a transaction agreement with Forward China, pursuant to which the Company sold all equity interest in Forward Switzerland

and Forward UK and certain other net assets related to Forward US’ OEM segment to Forward China to satisfy outstanding payables

due to Forward China under the Sourcing Agreement.

Additionally, the Company and Forward China terminated the Supply Agreement and extended

the term of the Note Payable (see Note 8 to the condensed consolidated financial statements) to December 31, 2025.

The Company paid $200,000

at closing and agreed to make additional cash payments of $150,000 on each of July 31, 2025, August 31, 2025 and September 30, 2025, which

are shown as Due to Forward China on the condensed consolidated financial statements.

Results of operations for Forward Switzerland and

Forward UK were included in the Company’s results of operations through and including May 16, 2025.

The sale of the OEM business

is considered a strategic shift that will have a significant impact on the Company’s operations and financial results.

and liabilities of the OEM segment were classified as assets and liabilities held for sale on the condensed consolidated balance sheets

at September 30, 2024.

The results of operations for the OEM segment have been classified as discontinued operations on the condensed

consolidated statements of operations for the three and nine months ended June 30, 2025 and 2024.

Unless otherwise noted, results for

discontinued operations are excluded from the discussion that follows.

Variability of Revenues

and Results of Operations

A significant portion of

our revenue is concentrated with several large customers, some of which are the same and some of which change over time.

Orders from some

of these customers can be highly variable, with short lead times, which can cause our quarterly revenues, and consequently our results

of operations, to vary over a relatively short period of time.

Critical Estimates

We discussed the significant

estimation processes that are critical to our business operations and the understanding of our financial statements in our Annual Report

on Form 10-K for the fiscal year ended September 30, 2024, under the caption “Management’s Discussion and Analysis of Financial

Condition and Results of Operations—Critical Accounting Policies and Estimates.” There have been no material changes in critical

accounting policies or estimation processes during the period covered by this report, but the following accounting estimates had a material

impact on our results of operations for the 2025 Period and fiscal 2024.

We review goodwill for impairment

annually, or more often if events or changes in circumstances indicate the carrying value of a reporting unit may exceed its fair value.

Evaluating goodwill for impairment requires a significant amount of judgment, including the estimation of future cash flows, future growth

rates and profitability.

Changes in our business strategy or adverse changes in market conditions could impact impairment analyses and

require the recognition of an impairment charge.

Although we base our estimates on historical experience and various other assumptions

that we believe to be reasonable under the circumstances at the time of evaluation, actual results could differ from these estimates.

December 2024, the Company was notified by its largest design customer of its plan to discontinue their insulin patch pump program, on

which IPS was working, and was beginning to wind down all activities related to it.

Revenue from this customer (all of which related to

this program) represented more than 30% of the Company’s consolidated net revenues in fiscal 2024.

Due to the historically high

concentration of revenue with this customer, the loss of its business was considered a triggering event which prompted the Company to

evaluate the goodwill of the IPS reporting unit.

Management performed quantitative testing on this reporting unit, which indicated its

carrying amount exceeded its fair value, resulting in a goodwill impairment charge of $225,000 in December 2024, primarily driven by a

reduction in its expected future performance at that time.

the second and third quarters of fiscal 2025, the IPS reporting unit continued to experience low levels of staff utilization due in part

to the loss of the aforementioned major customer, which was anticipated.

In addition, due to the uncertainty in the global markets related

to tariffs on imports, many IPS customers were slow to commit funds to projects, primarily in the second quarter of fiscal 2025, as they

were unsure how tariffs and other macroeconomic factors would impact their business.

The combination of these events resulted in negative

gross profit for the IPS reporting unit in the second and third quarters, which the Company considered triggering events to evaluate the

goodwill of the IPS reporting unit for impairment.

Management performed a quantitative goodwill impairment analysis for the IPS reporting

unit at March 31, 2025 and June 30, 2025, both of which indicated the fair value of the IPS reporting unit exceeded its carrying amount,

resulting in no further goodwill impairment in the three months ended March 31, 2025 or June 30, 2025.

to the historical losses of the Kablooe reporting unit, the Company elected to bypass the qualitative assessment and perform quantitative

goodwill impairment testing for the Kablooe reporting unit at September 30, 2024.

This quantitative testing indicated the carrying amount

of the Kablooe reporting unit exceeded its fair value, resulting in a goodwill impairment charge of $200,000 in September 2024, primarily

driven by a reduction in its expected future performance.

will continue to monitor the IPS and Kablooe goodwill for impairment as needed in future periods.

Changes in economic, industry or market

conditions, business operations, competition, the price of our common shares or market capitalization or our actual performance compared

with estimates of our future performance may affect the fair value of goodwill and could result in additional impairment charges in the

In March 2025, the Company

committed to a plan to sell the original equipment manufacturer (“OEM”) distribution segment of the business (“OEM Plan”).

In May 2025, the Company completed the sale of this line of business and is presenting its results of operations within discontinued operations

in the prior period presented herein.

The OEM distribution segment sourced and sold carrying cases and other accessories for medical monitoring

and diagnostic kits as well as a variety of other portable electronic and non-electronic devices to OEMs or their contract manufacturers

worldwide, that either packaged our products as accessories “in box” together with their branded product offerings or sold

them through their retail distribution channels.

The Company did not manufacture any of its OEM products and sourced substantially all

of these products from independent suppliers in China, through Forward Industries Asia-Pacific Corporation, a British Virgin Islands corporation

(“Forward China”), a related party owned by the Company’s former CEO (see Note 8 to the condensed consolidated financial

Unless otherwise noted, amounts

related to discontinued operations are excluded from the disclosures presented herein.

See Note 3 for more information on discontinued

Critical Accounting Estimates

Our financial statements

have been prepared in accordance with accounting principles generally accepted in the United States, which requires the use of certain

estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses.

Although we base our estimates

on historical experience and various other assumptions that we believe to be reasonable under the circumstances at the time of evaluation,

changes in our business strategy, adverse changes in market conditions or various other factors could cause actual results to differ from

these estimates and such differences could be significant.

We have identified the below

critical accounting estimates.

An accounting estimate is considered critical if both:

(a) the nature of the estimate or assumption is

material due to the levels of subjectivity and judgment involved, and (b) the impact of changes in the estimate and assumption has had

or is reasonably likely to have a material effect on the condensed consolidated financial statements.

This listing is not a comprehensive

list of all our accounting policies.

For further information regarding the application of these and other accounting policies, see Note

2 of the consolidated financial statements in our Annual Report on Form 10-K.

Share-Based Compensation

measure share-based compensation expense related to employee and non-employee director share-based awards based on the estimated fair

value of the awards as determined on the date of grant, which is recognized as expense over the requisite service period.

We utilize the

Black-Scholes option pricing model to estimate the fair value of stock options issued as compensation.

The Black-Scholes model requires

the input of highly subjective and complex assumptions, including the expected term of the stock option, and the expected volatility of

our common stock over the period commensurate with the expected term of the option.

Uncontrollable uncertainties, such as fluctuation

in interest rates, can have an effect on our Black-Scholes estimate calculations.

Such fluctuations and other unforeseen changes in inputs

could have a material impact on the general and administrative expenses within our financial statements.

Impairment of Digital

account for some of our digital assets, specifically fwdSOL, as indefinite-lived intangible assets in accordance with ASC Subtopic 350-30.

These digital assets are initially recorded at cost and subsequently measured at cost less any impairment losses.

We perform an impairment

analysis each reporting period or more frequently if events or changes in circumstances indicate that the carrying amount may not be recoverable.

An impairment loss is recognized when the fair value of these digital asset is less than their carrying value at any time during the period.

The impaired digital asset is written down to its fair value at the time of impairment, and the impairment loss cannot be reversed in

future periods even if fair values subsequently increase.

determination of fair value requires significant judgment and involves the use of market prices from digital asset exchanges.

factors including trading volume, market liquidity, and the reliability of pricing sources when determining fair value.

For fwdSOL, which

may have limited trading activity, we may use alternative valuation methods including discounted cash flow analysis or other market-based

Changes in market conditions, trading volumes, or the availability of reliable pricing information could materially affect

our impairment assessments and results of operations.

Recent Accounting Pronouncements

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RESULTS OF OPERATIONS FOR

THE THREE MONTHS ENDED JUNE 30, 2025 COMPARED TO THE THREE MONTHS ENDED JUNE 30, 2024

THE THREE MONTHS ENDED DECEMBER 31, 2025 COMPARED TO THE THREE MONTHS ENDED DECEMBER 31, 2024

2026 Quarter Highlights

· We generated revenues of $21.4 million in the 2026 Quarter compared

to revenues of $4.6 million in the 2025 Quarter, largely driven by our new digital asset treasury strategy.

· Gross margin increased from 24.5% in the 2025 Quarter to 78.6% in the 2026 Quarter, driven by the high margin staking revenue generated

by our digital asset treasury strategy.

· In the 2026 Quarter, we launched fwdSOL, an LST developed in collaboration with Socean Labs Inc., doing

business as Sanctum, on the Solana blockchain, which enables us to generate staking yield on SOL while unlocking additional sources of

return through DeFi and institutional borrowing strategies.

· At December 31, 2025, 1,489,896 shares of the Company’s common stock had been tokenized on the Solana blockchain through Superstate

Services LLC, our co-transfer agent.

Tokenization allows for shares of common stock to be self-custodied, transferred on a peer-to-peer

basis, used in the DeFi ecosystem as collateral and to be programmed into the execution of smart contracts.

All issued shares, regardless

of form, represent identical rights and investors may switch their ownership form at their discretion upon instructions subject to applicable

procedures and requirements and processing times.

Consolidated Results

The table below summarizes our consolidated results

from continuing operations for the 2026 Quarter as compared to the 2025 Quarter.

Dollar amounts and percentages have been rounded to

approximate values.

Consolidated Results of Operations

Revenues, net

$ (2,541,000 )

Cost of sales

Gross profit/(loss)

Sales and marketing expenses

General and administrative expenses

Loss on digital assets

Impairment of digital assets

Goodwill impairment

Operating loss

Other income, net

Loss from continuing operations

(583,639,000 )

(582,741,000 )

The discussion that follows

below provides further details about our results from continuing operations for the 2025 Quarter as compared to the 2024 Quarter.

The decline in net revenues

from the 2024 Quarter to the 2025 Quarter is primarily attributable to the loss of a major customer in December 2024 as well as a net

decrease in volume of work and projects with continuing customers, partially offset by projects from new customers.

In December 2024,

our largest design customer notified us of its plan to discontinue their insulin patch pump program, on which we were working.

this to continue to cause a material decrease in our revenues relative to fiscal 2024.

Management initiated cost reduction measures to

mitigate the impact of declining revenues, including two reductions in workforce in January 2025.

Our gross profit/(loss) margin

declined significantly, from 26.0% in the 2024 Quarter to (24.9%) in the 2025 Quarter, driven by lower revenues and utilization rates

and was partially mitigated by staff reductions in January 2025.

Sales and marketing expenses

decreased primarily due to lower personnel costs and lower marketing spend but increased as a percentage of revenues from 3.7% in the

2024 Quarter to 5.6% in the 2025 Quarter.

General and administrative

expenses increased in the 2025 Quarter.

Lower personnel costs related to staff reductions and a reduction in expenses related to the June

2024 reverse stock split were offset by higher professional fees primarily related to the sale of the OEM division.

Management continues

to monitor the various components of general and administrative expenses and how these costs are affected by inflationary and other factors.

We intend to adjust these costs as needed based on the overall needs of the business.

The change in other income,

net is primarily due to the change in fair value of the warrant liability and the decrease in interest income resulting from lower cash

balances in interest bearing accounts.

We generated a loss from

continuing operations of $2,404,000 in the 2025 Quarter compared to $455,000 in the 2024 Quarter.

We maintain significant net operating

loss carryforwards and do not recognize a significant income tax expense or benefit as our deferred tax provision is typically offset

by a full valuation allowance on our net deferred tax asset.

Consolidated basic and diluted

loss per share from continuing operations were $2.17 and $0.41 for the 2025 Quarter and the 2024 Quarter, respectively.

RESULTS OF OPERATIONS FOR

THE NINE MONTHS ENDED JUNE 30, 2025 COMPARED TO THE NINE MONTHS ENDED JUNE 30, 2024

The table below summarizes our consolidated results

from continuing operations for the 2025 Period as compared to the 2024 Period:

Consolidated Results of Operations

Revenues, net

$ (5,007,000 )

Cost of sales

Sales and marketing expenses

General and administrative expenses

Goodwill impairment

Operating loss

Other (income)/expense, net

Interest income, net

Other expense, net

Provision for income taxes

Loss from continuing operations

1 unchanged sentence

$ (584,754,000 )

$ (3,677,000 )

The discussion that follows

below provides further details about our results from continuing operations for the 2025 Period as compared to the 2024 Period.

The decline in net revenues

from the 2024 Period to the 2025 Period is primarily attributable to the loss of a major customer in December 2024 as well as a net decrease

in volume of work and projects with continuing customers, partially offset by projects from new customers.

In December 2024, our largest

design customer notified us of its plan to discontinue their insulin patch pump program, on which we were working.

We expect this to continue

to cause a material decrease in our revenues relative to fiscal 2024.

Management initiated cost reduction measures to mitigate the impact

of declining revenues, including two reductions in workforce in January and June 2025.

Our gross margin decreased

from 26.7% in the 2024 Period to 3.3% in the 2025 Period, driven by lower revenue and utilization rates and was partially offset by staff

reductions in January and June of 2025.

below provides further details about our results from continuing operations for the 2026 Quarter as compared to the 2025 Quarter.

The increase in net revenues

from the 2025 Quarter to the 2026 Quarter resulted from $17,381,000 in staking and other related revenue generated by our digital assets

segment and was partially offset by a $570,000 decline in design segment revenue, primarily attributable to the loss of a major design

customer in December 2024 and partially offset by the net increase in volume of work and projects with other customers.

Our gross profit increased

and gross margin increased from 24.5% in the 2025 Quarter to 78.6% in the 2026 Quarter.

The increase in both gross profit and gross margin

resulted from the high margin staking revenue generated by our digital assets segment, which generated gross profit of $15,983,000 and

gross margin of 92.0%.

In the design segment, gross profit decreased $267,000 and gross margin decreased from 24.5% in the 2025 Quarter

to 21.4% in the 2026 Quarter driven by a change in the mix of revenue coupled with higher labor costs.

Sales and marketing expenses

decreased primarily due to lower personnel costs and lower marketing spend but increased as a percentage of revenues from 4.0% in the

2024 Period to 4.4% in the 2025 Period.

General and administrative

expenses increased in the 2025 Period.

Lower personnel costs related to staff reductions, a reduction in expenses related to our annual

shareholder meeting and the June 2024 reverse stock split and lower director compensation were offset by higher professional

fees primarily related to the sale of the OEM segment.

Management continues to monitor the various components of general and administrative

expenses and how these costs are affected by inflationary and other factors.

We intend to adjust these costs as needed based on the overall

needs of the business.

The change in other (income)/expense,

net is primarily due to the change in fair value of the warrant liability, a decrease in interest income resulting from lower cash balances

in interest bearing accounts, and a decrease in interest expense resulting from a reduction in the amount of debt outstanding.

We generated a loss from

continuing operations of $5,124,000 in the 2025 Period compared to $1,447,000 in the 2024 Period.

We maintain significant net operating

loss carryforwards and do not recognize a significant income tax expense or benefit as our deferred tax provision is typically offset

by a full valuation allowance on our net deferred tax asset.

increased primarily due to increased corporate marketing spend of $446,000 related to corporate market research related activities and

was partially offset by a $71,000 reduction in the design segment, driven by cost reduction efforts, including lower personnel costs

and lower marketing spend.

Digital assets general and

administrative expenses include $1,739,000 of asset management and related fees.

Corporate general and administrative expenses increased

$3,727,000 due to higher professional fees related to our services agreement with Galaxy, higher investor relations spending and higher

personnel costs associated with hiring personnel necessary to execute our new digital assets treasury strategy.

Design segment general

and administrative expenses decreased $415,000 due to lower personnel costs related to staff reductions and other cost-cutting measures

in response to the decline in revenues.

Management continues to monitor the various components of general and administrative expenses

and how these costs are affected by inflationary and other factors.

We intend to adjust these costs as needed based on the overall needs

of the business.

During the 2025 Quarter,

the Company recorded a design segment goodwill impairment charge of $225,000 related to the IPS reporting unit.

This impairment charge

resulted from recurring impairment testing and was driven by a reduction in expected future performance of the reporting unit.

The loss on digital assets

in the 2026 Quarter of $560,212,000 was driven by the reduction in the fair value of our digital assets resulting from the decline in

the market value of SOL.

The non-cash impairment charge of $33,044,000 relates to our holdings of fwdSOL and is also driven by the decline

in market value of SOL.

These amounts reflect the volatility inherent in digital asset holdings and the Company’s accounting policy

that does not permit the reversal of impairment losses even if fair values subsequently increase.

The change in interest income, net is

due to non-cash interest income of $479,000 related to loaned SOL plus an increase in cash interest income of $193,000 related to higher

cash balances during the 2026 Quarter compared to the 2025 Quarter.

The income tax provision

in the 2026 Quarter resulted from taxable income generated for which NOLs may not be available to offset due to certain IRS limitations.

For the three months ended December 31, 2024, we reported no income tax provision or benefit due to the existence of significant net operating

loss carryforwards.

Consolidated basic and diluted

loss per share from continuing operations were $4.65 and $1.31 for the 2025 Period and the 2024 Period, respectively.

LIQUIDITY AND CAPITAL

loss per share from continuing operations were $5.91 and $0.82 for the 2026 Quarter and the 2025 Quarter, respectively.

LIQUIDITY AND CAPITAL RESOURCES

Prior to our recent financings,

our primary source of liquidity has been our operations.

The primary demand on our working capital is and has historically been (i) operating

losses, (ii) repayment of debt obligations, and (iii) any increases in accounts receivable.

Our sources of liquidity are currently adequate

to satisfy working capital requirements arising in the ordinary course of business.

At June 30, 2025, our working capital was $1,211,000.

At August 12, 2025, our cash balance was approximately $5,600,000.

Recent Financings

From July 1 – August

12, 2025, the Company sold 246,000 shares of common stock under the $35 million ELOC and received gross proceeds of $2,432,000 in connection

with such sales.

Assuming the Company continues to meet its obligations under the Purchase Agreement, management plans to raise additional

capital through the ELOC in the near future.

We cannot provide any assurance that:

(i) we will be able to continue selling under the

ELOC, (ii) if we are able to sell under the ELOC, that we will be able to do so at prices that we believe are beneficial to the Company

and its shareholders, or (iii) that our registration statement on form S-1 registering shares to be sold under the ELOC in the future

will be declared and remain effective.

As of the filing date of this Form 10-Q, the Company has sold all shares registered by it under

On August 11, 2025, the

Company sold, in a registered direct offering, approximately 263,000 shares of its common stock at a price of $8.50 per share to six

investors and received gross proceeds of approximately $2,230,000.

Other Liquidity Factors

Forward China, an entity

owned by our former Chairman of the Board and Chief Executive Officer, holds a $600,000 promissory note issued by the Company which matures

on December 31, 2025 (see Note 8 to the condensed consolidated financial statements).

We plan on repaying the note on or prior to its

maturity date.

In connection with the sale of the OEM business, we are obligated to pay Forward China $150,000 on each of August 31, 2025

and September 30, 2025 (in addition to the payment made on July 31, 2025).

Our condensed consolidated

financial statements have been prepared assuming the Company will continue as a going concern, which contemplates, among other things,

the realization of assets and satisfaction of liabilities in the ordinary course of business.

We had an accumulated deficit and working

capital of $22,647,000 and $1,211,000, respectively, at June 30, 2025, a net loss of $3,010,000 for the nine months ended June 30, 2025

and $1,951,000 in Fiscal 2024 and a cash balance of approximately $5,600,000 at August 12, 2025.

Based on our forecasted

cash flows, we believe that there is substantial doubt about our ability to continue as a going concern for a period of 12 months from

the date of issuance of the condensed consolidated financial statements.

The primary demand on our working capital has historically been (i) operating

losses, (ii) repayment of debt obligations, and (iii) any increases in accounts receivable and inventories arising in the ordinary course

Historically, our sources of liquidity have been adequate to satisfy working capital requirements arising in the ordinary

course of business.

Following our strategic pivot to a digital asset treasury strategy in September 2025, our liquidity profile has fundamentally

While we anticipate that our current liquidity and financial resources will remain adequate to manage our operating and financial

requirements for at least the next twelve months from the date of this filing, this assessment assumes that we will be able to liquidate

digital assets in amounts and at times necessary to meet our obligations, which may not be possible during periods of market stress or

reduced liquidity.

Additionally, our liquidity assessment does not account for potential margin calls or collateral requirements that

may arise from our DeFi activities, lending arrangements, or borrowing against pledged SOL.

Our ability to maintain adequate liquidity

depends on various factors including the market value of our digital assets, our ability to liquidate digital assets when needed, the

parameters of our share repurchase program and our ongoing operating expenses.

At December 31, 2025, our working capital was approximately

$52.9 million.

At January 31, 2026, our cash balance was approximately $12 million.

In December 2025 and January

2026, we executed open market purchases totaling 3,330,000 shares at an average cost of $7.32 per share for an aggregate cost of $24,387,000,

inclusive of fees.

If we have the opportunity

to make a strategic acquisition (as we have in the past with the acquisitions of IPS and Kablooe) or an investment in a product or partnership,

we may require additional capital beyond our current cash balance to fund the opportunity.

Although we do not anticipate

the need to purchase additional material capital assets in order to carry out our business, it may be necessary for us to purchase a material

amount of equipment and other capital assets in the future, depending on need.

During the 2025 Period and

2024 Period, our sources and uses of cash were as follows:

During the 2025 Period, cash

used in operating activities of $2,199,000 resulted from a net loss of $3,010,000, the gain on sale of the OEM segment of $1,406,000,

the gain on the change in fair value of the warrant liability of $160,000, a decrease in accrued expenses and other current liabilities

of $261,000, partially offset by non-cash expenses of $589,000 related to depreciation, amortization, share-based compensation, credit

loss expense and goodwill impairment charges, a decrease in accounts receivable and contract assets of $1,634,000, the net change in other

operating assets and liabilities of $19,000 and the net cash provided by discontinued operations of $396,000.

During the 2024 Period, cash

provided by operating activities of $53,000 resulted from a net loss of $1,307,000, decreases in accrued expenses and other current liabilities

of $707,000, a decrease in accounts payable of $373,000 and the net change in other operating assets and liabilities of $165,000, partially

offset by net cash provided by discontinued operations of $1,462,000, non-cash expenses of $333,000 related to depreciation, amortization,

share-based compensation and credit loss expense and a decrease in accounts receivable and contract assets of $810,000.

to make a strategic acquisition or an investment in a product or partnership, we may require additional capital beyond our current cash

balance to fund the opportunity.

During the 2026 Quarter and

2025 Quarter, our sources and uses of cash were as follows:

During the 2026 Quarter,

cash used in operating activities of $7,929,000 resulted from a net loss of $585,651,000, non-cash net digital asset revenue of $16,462,000,

an increase in accounts receivable and contract assets of $1,202,000, an increase in prepaid expenses and other current assets of $1,796,000,

partially offset by the loss on digital assets of $560,212,000, the digital asset impairment charge of $33,044,000, an increase in accrued

expenses and other liabilities $2,813,000, a net increase in accounts payable and related party payables of $642,000, an increase in deferred

income of $428,000 and non-cash charges for depreciation, amortization and share-based compensation of $43,000.

During the 2025 Quarter,

cash used in operating activities of $434,000 resulted from a net loss of $708,000, a decrease in deferred income of $121,000, a decrease

in accrued expenses and other current liabilities of $131,000 and cash used in discontinued operations of $81,000, partially offset by

a net decrease in accounts receivable and contract assets of $172,000, non-cash charges for depreciation, amortization, share-based compensation,

credit losses and goodwill impairment of $353,000 and the net change in other operating assets and liabilities of $82,000.

Investing Activities

Cash used in investing activities

in the 2025 Period resulted from payments for the sale of the OEM segment of $200,000 and purchases of property and equipment of $26,000.

Cash used in investing activities in the 2024 Period resulted from purchases of property and equipment of $50,000.

Cash provided by financing

activities in the 2025 Period consisted of $971,000 net proceeds from the issuance of preferred stock and warrants, partially offset by

deferred financing costs of $60,000 related to the equity line of credit.

Cash used in financing activities in the 2024 Period consisted

of principal payments on the promissory note held by Forward China of $500,000.

in the 2026 Quarter consisted of purchases of digital assets of $335,050,000 and sales of digital assets of $333,973,000.

investing activities in the 2025 Quarter of $5,000 resulted from purchases of property and equipment.

Cash used in financing activities

in the 2026 Quarter consisted of share repurchases of $10,883,000, fees associated with financing activities of $229,000, and deferred

financing costs associated with our ATM of $144,000, partially offset by net proceeds from ATM of $7,457,000 and proceeds from stock options

exercised of $26,000.

There was no cash used in or provided by financing activities in the 2025 Quarter.

Related Party Transactions

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What changed 10-Q

Item 2. Management’s Discussion and Analysis