iPower Inc. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (the “MD&A”) should be read in conjunction with our unaudited financial statements and the related notes thereto included elsewhere herein. This MD&A contains forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations, and intentions. Any statements that are not statements of historical fact are forward-looking statements. When used, the words “believe,” “plan,” “intend,” “anticipate,” “target,” “estimate,” “expect,” and the like, and/or future-tense or conditional constructions (“will,” “may,” “could,” “should,” etc.), or similar expressions, identify certain of these forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could cause actual results or events to differ materially from those expressed or implied by the forward-looking statements in this report. Our actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of several factors. Historical results may not indicate future performance. Our forward-looking statements reflect our current views about future events, are based on assumptions and are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those contemplated by these statements. We undertake no obligation to publicly update or revise any forward-looking statements, including any changes that might result from any facts, events, or circumstances after the date hereof that may bear upon forward-looking statements. Furthermore, we cannot guarantee future results, events, levels of activity, performance, or achievements. Overview Driven by technology and data, iPower operates as an online retailer and supplier of consumer goods and provides value-added e-commerce services to third-party products and brands. Our capabilities include established online sales channels, robust fulfillment operations, a network of warehouses serving the United States, competitive last-mile delivery partners, and a differentiated business intelligence platform. Leveraging these capabilities, we utilize proprietary, data-driven methodologies to support product launches and sales optimization, with the objective of efficiently bringing products to market and delivering value to customers in the United States and other markets. Our sales channels currently include Amazon Vendor Central, Amazon Seller Central (3P), Walmart.com, TikTok, Temu, other online marketplaces, and our owned e-commerce websites. We are also actively developing and marketing in-house branded products, as well as products offered through supply-chain partners. Our current brand portfolio includes iPower, Simple Deluxe, and other brands, offering products across categories such as home goods, fans, pet products, outdoor and gardening products, and consumer electronics. While we continue to focus on our core product categories, we seek to expand our product catalog through additional in-house development and partnerships with suppliers, guided by market data analytics. iPower is positioning itself at the intersection of digital assets and real-world commerce by leveraging its established e-commerce, logistics, and data infrastructure to support the distribution and integration of compliant digital-asset products through licensed partners. We initiated the Digital Treasury Strategy on June 17, 2025, with the plan of creating a Digital Treasury Strategy business. As this Digital Treasury Strategy is a newly planned addition to our business model, we cannot predict its success or how it will affect our business over the long term. The Digital Treasury Strategy is intended to provide measured, long-term exposure to digital assets that management believes may become increasingly integrated into commerce, while aligning the Company’s treasury strategy with its operational focus on digital-asset-related initiatives. Global Economic Disruption While at present the majority of our products are sourced either in the United States or China, the military conflict between Russia and Ukraine may nonetheless increase the likelihood of supply chain interruptions and hinder our ability to find the materials we need to make our products. Thus far, as a result of the general global economic disruption, we have experienced a decrease in the speed with which we have been able to purchase new inventory, as well as an increase in costs due to delays in shipping, resulting increase in time with which products remain in our warehouse facilities, thus resulting in reduced profits. In addition, supply chain disruptions may make it harder for us to find favorable pricing and reliable sources for the materials we need, putting upward pressure on our costs and increasing the risk that we may be unable to acquire the materials and services we need to continue to make certain products. 41 Recent Developments Reverse Stock Split At the 2025 annual meeting of stockholders of the Company, the Company’s stockholders approved a proposal authorizing the board of directors of the Company (the “Board”), in its sole discretion, to effect a reverse stock split of the outstanding shares of the Company’s common stock, at a reverse split ratio in the range of one-for-two (1:2) to one-for-two hundred (1:200), as determined by the Board, whereby every two to two hundred shares of the authorized, issued and outstanding common stock will be combined into one share of authorized, issued and outstanding common stock. Pursuant to such authority granted by the Company’s stockholders at the Annual Meeting, the Board approved a reverse split of between one-for-twenty (1:20) and one-for-thirty (1:30) (the “Reverse Stock Split”) of the common stock on October 13, 2025, subject to final determination of the Company’s management. Company management subsequently determined to effectuate a one-for-thirty (1:30) Reverse Stock Split and October 22, 2025, the Company filed a certificate of amendment to amend the certificate of incorporation of the Company with the Secretary of State of the State of Nevada, with an effective date of October 27, 2025. The Reverse Stock Split became effective at the start of trading on October 27, 2025 (the “Effective Time”), at which time, every thirty (30) shares of the Company’s issued and outstanding common stock immediately prior to the Effective Time was automatically reclassified into one (1) share of common stock, without any change in the par value per share. The Reverse Stock Split reduced the number of shares of common stock issuable upon the exercise or vesting of the Company’s outstanding warrants and restricted stock units in proportion to the ratio of the Reverse Stock Split and caused a proportionate increase in the exercise prices of such stock options. The Reverse Stock Split did not change the total number of authorized shares of common stock or preferred stock. On October 27, 2025, trading of the Company’s common stock continued on The Nasdaq Capital Market on a Reverse Stock Split-adjusted basis. Promissory Notes On November 24, 2025, the Company issued three promissory notes totaling $2 million (the “Promissory Notes”) in exchange for gross proceeds of $2 million. The Promissory Notes were entered into with certain investors and related parties, including an entity controlled by the Company’s CEO, Chenlong Tan. The Promissory Notes bear 6.5% interest per annum and were repayable upon the earlier of 90 days or the Company’s entry into new financing arrangements. The funds received in connection with the Company’s issuance of the Promissory Notes were used to pay off the Company’s existing asset-backed lending facility with JPMorgan Chase Bank, N.A. (“JPMorgan”) pursuant to the Company’s credit agreement with JPMorgan, originally dated November 12, 2021, as amended (the “Credit Agreement”). As a result of the repayment, the Company has initiated the termination of the related Uniform Commercial Code filings. The Promissory Notes were repaid on February 12, 2026. Stockholder Action On December 21, 2025, a majority of the Company’s stockholders (representing 53.1% of the Company’s outstanding voting power) took the following actions to approve: (1) the Convertible Note Facility (defined below); (2) the issuance of in excess of 20% of the Company’s outstanding common stock at a price less than the “Minimum Price” as defined in Nasdaq List Rule 5635(d); (3) authorizing an amendment to the Company’s articles of incorporation for the sole purpose of increasing the Company’s authorized shares from 200,000,000 shares, consisting of 180,000,000 shares of common stock and 20,000,000 shares of preferred stock, to 1,000,000,000 shares, consisting of 950,000,000 shares of common stock and 50,000,000 shares of preferred stock; (4) authorizing the Board to approve one or more reverse stock splits, in the range of 1-for-250 shares, with the Board to determine when, if ever, to effectuate such reverse stock split; and (5) authorizing the Company’s Board to adopt a mirror preferred stock in order to allow the Company to more easily achieve quorum in the event the Company needs to call a meeting to effectuate a reverse stock split for purposes of maintaining its Nasdaq listing or increase the Company’s Authorized shares. 42 The Company filed a preliminary information statement on Schedule 14C (the “Schedule 14C”) with the SEC on January 7, 2026. Following any SEC review, the Company will then finalize and mail the Schedule 14C to stockholders as of the December 22, 2025 record date. Convertible Note Facility On December 22, 2025, the Company entered into a Securities Purchase Agreement with a certain institutional investor (the “Investor”) named therein (the “Purchase Agreement”) providing for the purchase by the Investor of a 6% original issue discount (OID) convertible note facility in the aggregate original principal amount of $30,000,000 (the “Convertible Note Facility”), in which the Investor initial purchased (i) a series A senior secured convertible note in the aggregate original principal amount of $5,184,024 (the “Series A Convertible Note”), and shares of the Company’s common stock, issuable pursuant to the terms of the Series A Convertible Notes (the “Series A Conversion Shares”) in reliance upon the exemption from securities registration afforded by Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), and Rule 506(b) of Regulation D as promulgated by the Securities and Exchange Commission (the “SEC”) under the Securities Act, and (ii) $1,815,976 aggregate principal amount of a series B senior secured convertible note (the “Series B Convertible Notes,” together with the Series A Convertible Notes, the “Convertible Notes”), and shares of the Company’s common stock issuable pursuant to the terms of the Series B Convertible Notes (the “Series B Conversion Shares”) in a registered direct offering pursuant to a currently effective shelf registration statement on Form S-3 (File No. 333-274665), which has been declared effective by the SEC on September 29, 2023. In addition, pursuant to the Purchase Agreement, the parties closed on an additional approximately $2,000,000 of Series A Convertible Notes (the “Additional Series A Notes”), bringing the total amount of 6% OID Convertible Notes sold to $9,000,000, with the Additional Series A Notes to be paid for and issuable upon the effectiveness of a resale registration statement registering the Series A Convertible Notes. At closing, as consideration for issuance of the Convertible Notes, the Company received gross proceeds of $6,580,000, before deducting expenses. Digital Offering LLC acted as placement agent and received $394,800 in placement agent fees. The Convertible Notes are convertible into shares of the Company’s common stock at a fixed Conversion Price of $17.70 per share, subject to adjustment as provided in the Convertible Notes. The holder may elect to convert at an Alternate Conversion Price, which provides for conversion at a discounted price based on recent trading VWAP. The Alternate Optional Conversion Price is equal to the lower of (i) the Conversion Price or (ii) the greater of (x) the Floor Price (as defined below) or (y) 95% of the lowest VWAP during the seven (7) consecutive trading day period ending on the trading day immediately preceding delivery of the conversion notice. The Alternate Event of Default Conversion Price is equal to the lower of (i) the Conversion Price or (ii) the greater of (x) the Floor Price or (y) 90% of the lowest VWAP during the ten (10) consecutive trading day period ending on the trading day immediately preceding delivery of the conversion notice. The Floor Price is $2.27 per share, subject to adjustment. The Convertible Notes are senior secured obligations of the Company, secured by Collateral (as defined in the Security and Pledge Agreement), consisting of all of the cryptocurrency and cryptocurrency related assets of the Company and certain of its subsidiaries. On December 23, 2025, the Company entered into a Registration Rights Agreement with the Investor (the “Registration Rights Agreement”), which provides the Investor with certain registration rights with respect to the resale of the Series A Conversion Shares issuable upon conversion of the Series A Convertible Notes. Pursuant to the Registration Rights Agreement, the Company filed a registration statement with the SEC on January 12, 2026 to register the resale of the Series A Conversion Shares. On February 9, 2026, the Company delivered an Additional Mandatory Closing Notice to the Investor and, on February 10, 2026, consummated the Additional Mandatory Closing in accordance with the Purchase Agreement, receiving $1,880,00 in exchange for issuing a $2,000,000 aggregate principal amount of the Additional Mandatory Series A Note to the Investor after satisfaction of all applicable closing conditions, including the effectiveness of the resale registration statement and the absence of any Event of Default. 43 Initial Acquisitions under the Digital Treasury Strategy On June 17, 2025, the Company adopted a digital asset reserve, allocation and development strategy with the plan of creating a Digital Treasury Strategy business. On December 29, 2025, the Company announced the following initial acquisitions under the Digital Treasury Strategy: (1) the purchase of 15.1 Bitcoin (BTC) at an average price of $87,686.33 per BTC, for a total notional value of approximately $1,325,400 and (2) the purchase of 301.1 Ethereum (ETH) at an average price of $2,934.67 per ETH, for a total notional value of approximately $883,600. As this Digital Treasury Strategy is a new addition to our business model, we cannot predict its success or if we will continue with this strategy for the long term. RESULTS OF OPERATIONS For the three months ended December 31, 2025 and 2024 The following table presents certain unaudited condensed consolidated statement of operations information and presentation of that data as a percentage of change from period to period. Three Months Ended December 31, 2025 Three Months Ended December 31, 2024 Variance Revenues - product sales $ 7,133,602 17,606,889 (59.5 %) Revenues - service income – 1,465,682 (100.0 %) 7,133,602 19,072,571 (62.6 %) Cost of revenues - product costs 3,994,680 9,461,119 (57.8 %) Cost of revenues - service costs – 1,221,566 (100.0 %) 3,994,680 10,682,685 (62.6 %) Gross profit 3,138,922 8,389,886 (62.6 %) Operating expenses 5,576,899 7,706,279 (27.6 %) Operating loss (2,437,977 ) 683,607 (456.6 %) Other income 424,188 (347,432 ) (222.09 %) Loss before income taxes (2,013,789 ) 336,175 (699.0 %) Income tax (benefit) expense (820,508 ) 120,511 (780.9 %) Net loss (1,193,281 ) 215,664 (653.3 %) Non-controlling interest – (3,155 ) (100.0 %) Net loss income attributable to iPower Inc. (1,193,281 ) 218,819 (645.3 %) Other comprehensive loss (379 ) 156,130 (100.2 %) Comprehensive loss attributable to iPower Inc. $ (1,193,660 ) 374,949 (418.4 %) Gross profit % of revenues – product sales 44.0 % 46.3 % Gross profit % of revenues – service income – 16.7 % Operating loss % of revenues (34.2 %) 3.6 % Net income (loss) % of revenues (16.7 %) 1.1 % 44 Revenues Revenues for the three months ended December 31, 2025 decreased 62.6% to $7,133,602 as compared to $19,072,571 for the three months ended December 31, 2024. While pricing remained stable, the decrease was mainly due to the combination of decreased orders from Amazon, disruption of product supply, and decreased logistic service income, during the quarter ended December 31, 2025. In addition, the Company also experienced a significant decrease in Amazon orders as a result of the negative impact from uncertainty over tariffs during quarter ended December 31, 2025. Costs of Revenues Costs of revenues for the three months ended December 31, 2025 decreased 62.6% to $3,994,680 as compared to $10,682,685 for the three months ended December 31, 2024. The decrease was primarily due to the decrease in sales. Gross Profit Gross profit was $3,138,922 for the three months ended December 31, 2025 as compared to $8,389,886 for the three months ended December 31, 2024. While the gross profit ratio of the product sales revenues decreased to 44% for the three months ended December 31, 2025 from 46.3% for the three months ended December 31, 2024, the overall gross profit ratio of the total sales revenues for the three months ended December 31, 2025 and 2024 was 44%. The decrease in the gross profit ratio of the product sales revenues was primarily driven by increases in product costs. Operating Expenses Operating expenses for the three months ended December 31, 2025 decreased 27.6% to $5,576,899 as compared to $7,706,279 for the three months ended December 31, 2024. The decrease was mainly due to the combination of a decrease in selling and fulfillment expenses of $1.6 million as a result of decrease in sales and a decrease in general and administrative expenses of $0.6 million, which included payroll expenses, stock-based compensation expense, insurance expenses, allowance for credit losses, travel expenses and other operating expenses. The decrease in general and administrative expenses was primarily attributable to the implementation of a cost-cutting plan during the current quarter, as compared to the prior-year period which included expenses related to the expansion of our vendor network, the development of the SuperSuite platform, and an increase in the allowance for credit losses and inventory reserves totaling $1.76 million for the quarter ended December 31, 2024. Income (Loss) from Operations Income (loss) from operations was $(2,437,977) for the three months ended December 31, 2025 as compared to $683,607 of income from operations for the three months ended December 31, 2024. The decrease in income was primary due to the combination of decrease in sales and operating expenses as discussed above. Other Income (Expense) Other income (expense) consists of interest expense and other non-operating income (expense). Other income (expense) for the three months ended December 31, 2025 was $424,188 as compared to $(347,432) for the three months ended December 31, 2024. The increase in other income was mainly due to combination of the increase in other non-operating income of $639,109 resulted from refund of Employee Retention Tax Credit, change in fair value of derivative liability, and gain on disposal of vehicle. 45 Net Income (Loss) Attributable to iPower Inc. Net income (loss) attributable to iPower Inc. for the three months ended December 31, 2025 was $(1,193,281) as compared to $218,819 for the three months ended December 31, 2024, representing an increase in net loss of $1,412,100, which was primarily due to a combination of the increase in loss from operations and the increase in other income as discussed above. Comprehensive Income (Loss) Attributable to iPower Inc. Comprehensive income (loss) attributable to iPower Inc. for the three months ended December 31, 2025 was $(1,193,660) as compared to $374,949 for the three months ended December 31, 2024, representing an increase in comprehensive loss of $1,568,609. The increase was due to the reasons discussed above, along with a decrease in other comprehensive income of $156,509 due to reduced foreign currency translation adjustments resulting from the translation of RMB, the functional currency of our subsidiary and VIE in the PRC, to USD, the reporting currency of the Company. For the six months ended December 31, 2025 and 2024 The following table presents certain unaudited condensed consolidated statement of operations information and presentation of that data as a percentage of change from period to period. Six Months Ended December 31, 2025 Six Months Ended December 31, 2024 Variance Revenues - product sales $ 17,618,347 35,882,301 (50.9 %) Revenues - service income 1,532,722 2,198,791 (30.3 %) 19,151,069 38,081,092 (49.7 %) Cost of revenues - product costs 9,872,942 19,378,567 (49.1 %) Cost of revenues - service costs 1,332,681 1,824,742 (27.0 %) 11,205,623 21,203,309 (47.2 %) Gross profit 7,945,446 16,877,783 (52.9 %) Operating expenses 12,078,602 18,940,610 (36.2 %) Operating loss (4,133,156 ) (2,062,827 ) 100.4 % Other income (expenses) 1,122,135 (269,627 ) (516.2 %) Loss before income taxes (3,011,021 ) (2,332,454 ) 29.1 % Income tax (benefit) expense (1,284,092 ) (516,001 ) 148.9 % Net loss (1,726,929 ) (1,816,453 ) 4.93 % Non-controlling interest – (5,991 ) (100.0 %) Net loss income attributable to iPower Inc. (1,726,929 ) (1,810,462 ) 4.6 % Other comprehensive income 24,564 101,076 (75.7 %) Comprehensive loss attributable to iPower Inc. $ (1,702,365 ) (1,709,386 ) 0.41 % Gross profit % of revenues – product sales 44.0 % 46.0 % Gross profit % of revenues – service income 13.1 % 17.0 % Operating loss % of revenues (21.6 %) (5.4 %) Net loss % of revenues (9.0 %) (4.8 %) 46 Revenues Revenues for the six months ended December 31, 2025 decreased 49.7% to $19,151,069 as compared to $38,081,092 for the six months ended December 31, 2024. While pricing remained stable, the decrease was mainly due to the combination of decreased orders from Amazon and disruption of product supply during the six months ended December 31, 2025. In addition, the Company also experienced a significant decrease in Amazon orders due to uncertainty over tariffs during the six months ended December 31, 2025. Costs of Revenues Costs of revenues for the six months ended December 31, 2025 decreased 47.2% to $11,205,623 as compared to $21,203,309 for the six months ended December 31, 2024. The decrease was primarily due to a combination of the costs related to the logistics service income and the decrease in sales. Gross Profit Gross profit was $7,945,446 for the six months ended December 31, 2025 as compared to $16,877,783 for the six months ended December 31, 2024. While the overall gross profit ratio of the total sales revenues decreased to 41.5% for the six months ended December 31, 2025 from 44.3% for the six months ended December 31, 2024, the gross profit ratio of product sales revenue for the six months ended December 31, 2025 and 2024 was 44.0% and 46.0%, respectively. The decrease in the gross profit ratio was primarily driven by the decrease in the logistics service income and secondarily by increases in freight costs and product costs. Operating Expenses Operating expenses for the six months ended December 31, 2025 decreased 36.2% to $12,078,602 as compared to $18,940,610 for the six months ended December 31, 2024. The decrease was mainly due to the combination of a decrease in selling and fulfillment expenses of $2.3 million as a result of decreased sales and costs related to advertising, merchant fees, rental expenses and delivery fees, and a decrease in general and administrative expenses of $4.6 million, which included payroll expenses, stock-based compensation expense, insurance expenses, allowance for credit losses, travel expenses and other operating expenses. The decrease in general and administrative expenses was primarily attributable to the implementation of a cost-cutting plan during the current period, as compared to the prior-year period which included expenses related to the expansion of our vendor network, the development of the SuperSuite platform, and an increase in the allowance for credit losses and inventory reserves totaling $1.8 million for the six months ended December 31, 2024. Loss from Operations Loss from operations was $4,133,156 for the six months ended December 31, 2025 as compared to $2,062,827 for the six months ended December 31, 2024. The increase in loss was primary due to the combination of decrease in sales and operating expenses as discussed above. Other Income (expense) Other income (expense) consists of interest expense and other non-operating income (expense). Other income (expense) for the six months ended December 31, 2025 was $1,122,135 as compared to $(269,627) for the six months ended December 31, 2024. The increase in other income was mainly due to combination of the increase in other non-operating income of $1,219,713 resulted from discounted settlement and write-offs of aged accounts payable, recognition of loss on deconsolidation of VIE, a decrease in interest, including amortization of debt discount, on the revolving loan of $73,924 during the six months ended December 31, 2025 resulted from the termination of the revolving ABL, refund of Employee Retention Tax Credit, change in fair value of derivative liability, and gain on disposal of vehicle. 47 Net Income (Loss) Attributable to iPower Inc. Net loss attributable to iPower Inc. for the six months ended December 31, 2025 was $1,726,929 as compared to $1,810,462 for the six months ended December 31, 2024, representing a decrease in net loss of $83,533, which was primarily due to the combination of increase in loss from operations and the increase in other income as discussed above. Comprehensive Loss Attributable to iPower Inc. Comprehensive loss attributable to iPower Inc. for the six months ended December 31, 2025 was $1,702,365 as compared to $1,709,386 for the six months ended December 31, 2024, representing a slight decrease in comprehensive loss of $7,021, which was due to the reasons discussed above, along with a decrease in other comprehensive income of $76,512 as a result of foreign currency translation adjustments resulting from the translation of RMB, the functional currency of our subsidiary and VIE in the PRC, to USD, the reporting currency of the Company. LIQUIDITY AND CAPITAL RESOURCES Sources of Liquidity During the six months ended December 31, 2025, we primarily funded our operations with cash and cash equivalents generated from operations, borrowing from related party, as well as through borrowings under our credit facility from JPMorgan Chase Bank (“JPM”) and close of a convertible notes financing on December 23, 2025. Additionally, on June 18, 2024, we closed on a registered direct offering of 69,445 shares of common stock (the “Shares”) and a concurrent private placement of warrants to purchase up to 69,445 shares of common stock (the “Warrants”), which Shares and Warrants were sold for aggregate gross proceeds of $5,000,002. As of December 31, 2025, we had cash and cash equivalents of $2,011,738, representing a $3,848 increase from $2,007,890 in cash as of June 30, 2025. The cash increase was primarily due to the combined result of cash provided by operating activities, cash used in investing activities and financing activities resulting from our payments to pay down the JPM revolving line of credit and proceeds from convertible notes. Based on our current operating plan, we believe that our existing cash and cash equivalents and cash flows from operations will be sufficient to finance our operations during the next 12 months. However, our liquidity and our ability to meet our obligations and fund our capital requirements are dependent on our future financial performance, which is subject to general economic, financial and other factors that are beyond our control, such as rising inflation and potential recession, and our anticipated funding requirements could increase. See “Item 1A - Risk Factors” in our Annual Report on Form 10-K filed with the SEC on October 9, 2025. Our cash requirements consist primarily of day-to-day operating expenses and obligations with respect to warehouse leases. We lease all of our office and warehouse facilities. We expect to make future payments on existing leases from cash generated from operations. We have credit terms in place with our major suppliers, however as we bring on new suppliers, we are often required to prepay our inventory purchases from them. This is consistent with our historical operating model which allowed us to operate using only cash generated by the business. Beyond the next 12 months we believe that our cash flow from operations should improve as supply chain operations normalize and new suppliers we are bringing online transition to credit terms more favorable to us. In addition, we plan to increase the size of our in-house product catalog, which will have a net beneficial impact to our margin profile and ability to generate cash. Given our current working capital position and available funding from our revolving credit line and proceeds from our June 2024 registered direct offering, we believe we will be able to work through the current challenges by managing payment terms with customers and vendors. 48 Working Capital As of December 31, 2025 and June 30, 2025, our working capital was $6.7 million and $4.9 million, respectively. The historical seasonality in our business during the year can cause cash and cash equivalents, inventory and accounts payable to fluctuate, resulting in changes in our working capital. We anticipate that past historical trends to remain in place through the balance of the fiscal year with working capital remaining near this level for the foreseeable future. Cash Flows Operating Activities Our largest source of cash provided by operations is from sales of products. Our primary uses of cash from operating activities include payments to suppliers for products, to employees for compensation, and other general expenses. Net cash provided by (used in) operating activities for the six months ended December 31, 2025 and 2024 was $763,906 and $(1,387,926), respectively. The increase in cash provided by operating activities mainly resulted from an increase in cash received from customers, which was partially offset by an increase in cash paid for cost of revenues and operating expenses. Investing Activities Net cash used in investing activities for the six months ended December 31, 2025 and 2024 was $5,593,628 and $664,366, respectively. The increase was mainly due to deconsolidation of VIE cash, payments made for investment in joint venture, purchase of digital assets, and prepayments made for software developments during the quarter ended December 31, 2025. Financing Activities Net cash provided by (used in) in financing activities was $4,822,051 and $(2,558,389), respectively, for the six months ended December 31, 2025 and 2024. The increase in net cash provided by financing activities was primarily due to a combination of proceeds from a convertible note financing and payments on the revolving loan. OFF-BALANCE SHEET ARRANGEMENTS We do not have any off-balance sheet arrangements (as that term is defined in Item 303 of Regulation S-K) that are reasonably likely to have a current or future material effect on our financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources. CRITICAL ACCOUNTING POLICIES AND ESTIMATES We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States, or GAAP, and pursuant to the rules and regulations of the SEC. The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. In some cases, changes in the accounting estimates are reasonably likely to occur from period to period. Accordingly, actual results could differ materially from our estimates. To the extent that there are material differences between these estimates and actual results, our financial condition and results of operations will be affected. We base our estimates on experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. We refer to accounting estimates of this type as critical accounting policies, which we discuss further below. While our significant accounting policies are more fully described in Note 2 to our unaudited condensed consolidated financial statements, we believe that the following accounting policies are critical to the process of making significant judgments and estimates in the preparation of our unaudited condensed consolidated financial statements. 49 Revenue recognition The Company recognizes revenues from service and product sales, net of promotional discounts and return allowances, when the following revenue recognition criteria are met: a contract has been identified, separate performance obligations are identified, the transaction price is determined, the transaction price is allocated to separate performance obligations and revenue is recognized upon satisfying each performance obligation. The Company transfers the risk of loss or damage upon shipment or completion of service, therefore, revenue from product sales is recognized when it is shipped to the customer and the revenue from services is recognized upon completion of services. Return allowances, which reduce product revenue by the Company’s best estimate of expected product returns, are estimated using historical experience. The Company evaluates the criteria of ASC 606 - Revenue Recognition Principal Agent Considerations in determining whether it is appropriate to record the gross amount of product sales and related costs or the net amount earned as commissions. Generally, when the Company is primarily responsible for fulfilling the promise to provide a specified good or service and the Company has discretion in establishing the price, revenue is recorded at gross. Payments received prior to the delivery of goods to customers are recorded as customer deposits. The Company periodically provides incentive offers to its customers to encourage purchases. Such offers include current discount offers, such as percentage discounts off current purchases and other similar offers. Current discount offers, when accepted by the Company’s customers, are treated as a reduction to the purchase price of the related transaction. Sales discounts are recorded in the period in which the related sales are recorded. Sales return allowances are estimated based on historical amounts and are recorded upon recognizing the related sales. Shipping and handling costs are recorded as selling expenses. Accounts receivable During the ordinary course of business, the Company extends unsecured credit to its customers. Accounts receivable are stated at the amount the Company expects to collect from customers, which includes the amount withheld by sales channel partners and refundable to the Company. Based on historical an expected loss rate and status of negotiations with the sales channel partner, management reviews its accounts receivable balances each reporting period to determine if an allowance for credit loss is required. The Company evaluates the creditworthiness of all of its customers individually before accepting them and continuously monitors the recoverability of accounts receivable. If there are any indicators that a customer may not make payment, the Company may consider making provision for non-collectability for that particular customer. At the same time, the Company may cease further sales or services to such customer. The following are some of the factors that the Company develops allowance for credit losses: · the customer fails to comply with its payment schedule; · the customer is in serious financial difficulty; · a significant dispute with the customer has occurred regarding job progress or other matters; · the customer breaches any of its contractual obligations; · the customer appears to be financially distressed due to economic or legal factors; · the business between the customer and the Company is not active; and · other objective evidence indicates non-collectability of the accounts receivable. 50 Accounts receivable are recognized and carried at carrying amount less an allowance for credit losses, if any. The Company maintains an allowance for credit losses resulting from the inability of its customers to make required payments based on contractual terms. The Company reviews the collectability of its receivables on a regular and ongoing basis. The Company has also included in calculation of allowance for credit losses the potential impact of the overall economic conditions on our customers’ industry and businesses and their ability to pay our accounts receivable. After all attempts to collect a receivable have failed, the receivable is written off against the allowance. The Company also considers external factors to the specific customer, including current conditions and forecasts of economic conditions, including the potential impact of the recent tariff policy. In the event we recover amounts previously written off, we will reduce the specific allowance for credit losses. Inventories, net Inventory consists of finished goods ready for sale and is stated at the lower of cost or market. The Company values its inventory using the weighted average costing method. The Company’s policy is to include as a part of inventory and costs of goods sold any freight incurred to ship the product from its vendors to warehouses. Outbound freight costs related to shipping costs to customers are considered period costs and reflected in selling and fulfillment expenses. The Company regularly reviews inventory and considers forecasts of future demand, market conditions and product obsolescence. If the estimated realizable value of the inventory is less than cost, the Company makes provisions in order to reduce its carrying value to its estimated market value. The Company also reviews inventory for slow moving and obsolescence and records allowance for obsolescence. Digital Assets The Company accounts for its digital assets, which currently are comprised solely of Bitcoin (“BTC”) and Ethereum (“ETH”), as indefinite-lived intangible assets in accordance with Accounting Standards Codification (“ASC”) Topic 350-60, “Intangibles—Goodwill and Other—Crypto Assets.” The Company has ownership of and control over its digital assets and may use third-party custodial services to secure it. The Company’s digital assets are initially recorded at cost and are subsequently remeasured on the balance sheet at fair value. The Company determines the fair value of its digital assets on a recurring basis in accordance with ASC Topic 820, “Fair Value Measurement,” based on quoted prices on the active exchange that the Company has determined is its principal market for such digital assets (Level 1 inputs). The Company determines the cost basis of digital assets using the specific identification of each unit received. Realized and unrealized gains and losses from changes in the fair value of digital assets are recognized in the statement of operations. Variable interest entities On February 15, 2022, the Company acquired 100% of the ordinary shares of Anivia and its subsidiaries, including Daheshou (Shenzhen) Information Technology Co., Ltd., a company organized under the Laws of the PRC (“DHS”). Pursuant to the terms of the Agreements, the Company does not have direct ownership in DHS but is actively involved in DHS’s operations as the sole manager to direct the activities and significantly impact DHS’s economic performance. DHS’s operational funding has been provided by the Company following the February 15, 2022 acquisition. During the term of the Agreements, the Company bears all the risk of loss and has the right to receive all of the benefits from DHS. As such, based on the determination that the Company is the primary beneficiary of DHS, in accordance with ASC 810-10-25-38A through 25-38J, DHS is considered a VIE of the Company and the financial statements of DHS have been consolidated from the date such control existed, February 15, 2022. On August 4, 2025, the Company entered into a Variable Interest Entity (“VIE”) Contract Termination Agreement with the VIE, pursuant to which all VIE agreements were terminated. As a result, the Company no longer has a controlling financial interest in the VIE. In accordance with ASC 810-10-40, Consolidation — Deconsolidation of a Subsidiary or Derecognition of a Group of Assets , the Company deconsolidated the VIE as of the termination date. 51 Upon deconsolidation, the Company derecognized all assets and liabilities of the VIE from its consolidated balance sheet. Because the Company retains no ownership interest or continuing involvement in the VIE following the termination of the agreements, no retained interest was recognized. Goodwill Goodwill represents the excess of the purchase price over the fair value of assets acquired and liabilities assumed. The Company accounts for goodwill under ASC Topic 350, Intangibles-Goodwill and Other . Goodwill is not amortized but is reviewed for potential impairment on an annual basis, or if events or circumstances indicate a potential impairment, at the reporting unit level. The Company’s review for impairment includes an assessment of qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value, including goodwill. If it is determined that it is more likely than not that the fair value of a reporting unit is less than its carrying value, including goodwill, a quantitative goodwill impairment test is performed, which compares the fair value of the reporting unit with its carrying amounts, including goodwill. If the fair value of the reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired. However, if the carrying amount of the reporting unit exceeds its fair value, an impairment loss will be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. During the six months ended December 31, 2025 and 2024, the Company performed a qualitative goodwill impairment analysis following the steps laid out in ASC 350-20-35-3C and noted no goodwill impairment. As of December 31, 2025 and June 30, 2025, the goodwill balance amounted to $3,034,110 and $3,034,110, respectively. Embedded derivative liability The Company evaluates the embedded features of its financial instruments, including its convertible notes payable in accordance with ASC Topic 480, “ Distinguishing Liabilities from Equity ,” and ASC Topic 815 “ Derivatives and Hedging .” Certain conversion options and redemption features are required to be bifurcated from their host instrument and accounted for as free-standing derivative financial instruments should certain criteria be met. The Company applies significant judgment to identify and evaluate complex terms and conditions for its financial instruments to determine whether such instruments are derivatives or contain features that qualify as embedded derivatives. Embedded derivatives must be separately measured from the host contract if all the requirements for bifurcation are met. The assessment of the conditions surrounding the bifurcation of embedded derivatives depends on the nature of the host contract and the features of the derivatives. Bifurcated embedded derivatives are recognized at fair value. The following table provides a roll-forward of changes for financial instruments measured at fair value on a recurring basis for the six months ended December 31, 2025: Derivative Liability Amount Balance as of June 30, 2025 $ – Initial fair value upon issuance of convertible notes 1,612,700 Extinguishment of derivative liability upon conversion of convertible notes (23,000 ) Gain on change in fair value of derivative liability (176,600 ) Balance as of June 30, 2025 $ 1,413,100 52 Intangible Assets, net Finite life intangible assets at December 31, 2025 include a covenant not to compete, supplier relationships and software recognized as part of the acquisition of Anivia. Intangible assets are recorded at the estimated fair value of these items at the date of acquisition, February 15, 2022. Intangible assets are amortized on a straight-line basis over their estimated useful life as follows: Useful Life Covenant Not to Compete 10 years Supplier relationship 6 years Software 5 years The Company reviews the recoverability of long-lived assets, including intangible assets, when events or changes in circumstances occur that indicate the carrying value of the asset may not be recoverable. The assessment of possible impairment is based on the ability to recover the carrying value of the asset from the expected future pretax cash flows (undiscounted and without interest charges) of the related operations. If these cash flows are less than the carrying value of such asset, an impairment loss is recognized for the difference between estimated fair value and carrying value. The measurement of impairment requires management to make estimates of these cash flows related to long-lived assets, as well as other fair value determinations. The Company did not record any impairment charge for the six months ended December 31, 2025 and 2024. Stock-based Compensation The Company applies ASC No. 718, “Compensation-Stock Compensation,” which requires that share-based payment transactions with employees and nonemployees upon adoption of ASU 2018-07, be measured based on the grant date fair value of the equity instrument and recognized as compensation expense over the requisite service period, with a corresponding addition to equity. Under this method, compensation cost related to employee share options or similar equity instruments is measured at the grant date based on the fair value of the award and is recognized over the period during which an employee is required to provide service in exchange for the award, which generally is the vesting period. In addition to the requisite service period, the Company also evaluates the performance condition and market condition under ASC 718-10-20. For an award that contains both a performance and a market condition, and where both conditions must be satisfied in order for the award to vest, the market condition is incorporated into the fair value of the award, and that fair value is recognized over the employee’s requisite service period or nonemployee’s vesting period if it is probable that the performance condition will be met. If the performance condition is ultimately not met, compensation cost related to the award should not be recognized (or should be reversed) because the vesting condition in the award has not been satisfied. The Company will recognize forfeitures of such equity-based compensation as they occur. Income taxes The Company accounts for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their perspective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance must be established for deferred tax assets when it is more-likely-than-not (a probability level of more than 50%) that they will not be realized. Valuation allowances are recorded, when necessary, to reduce deferred tax assets to the amount expected to be realized. 53 The Company has analyzed filing positions in each of the federal and state jurisdictions where the Company is required to file income tax returns, as well as open tax years in such jurisdictions. The Company has identified the U.S. federal jurisdiction, and the states of Nevada and California, as its “major” tax jurisdictions. However, the Company has certain tax attribute carryforwards which will remain subject to review and adjustment by the relevant tax authorities until the statute of limitations closes with respect to the year in which such attributes are utilized. The Company believes that our income tax filing positions and deductions will be sustained on audit and does not anticipate any adjustments that will result in a material change to its financial position. Therefore, no reserves for uncertain income tax positions have been recorded pursuant to ASC 740, Income Taxes. The Company’s policy for recording interest and penalties associated with income-based tax audits is to record such items as a component of income taxes. Recently issued accounting pronouncements Other than as set forth under Note 2 to the unaudited condensed consolidated financial statements under “Recently issued accounting pronouncements,” the Company does not believe other recently issued but not yet effective accounting standards, if currently adopted, would have a material effect on the consolidated financial position, statements of operations and cash flows. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK As a “smaller reporting company,” we are not required to provide the information required by this Item.