What changed in this filing

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Item 7. Management’s Discussion and Analysis

2026-10-02 compared with 2025-10-09 · 402 added, 544 removed, 174 unchanged (84% of the section changed)

1 unchanged sentence

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 financial

The following Management’s Discussion and

Analysis of Financial Condition and Results of Operations (the “MD&A”) should be read in conjunction with our financial

statements and the related notes thereto included elsewhere herein.

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of several factors.

Historical results may not indicate future

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.

Driven by tech and data, iPower

is an online supplier of consumer goods, including hydroponics equipment, general gardening supplies, and consumer home goods.

the operations of our e-commerce platforms and channel partners, our 99,347 square foot fulfillment centers in Rancho Cucamonga, California,

we believe we are one of the leading marketers, distributors and retailers in the consumer gardening and home goods categories, based

on management’s estimates.

Our core strategy continues to focus on expanding our geographic reach across the United States and internationally

through organic growth, both in terms of expanding customer base as well as brand and product development.

iPower has developed a set

of methodologies driven by proprietary data formulas to effectively bring products to market and sales.

We are actively developing

our in-house branded products and through supply chain partners, which to date include the iPower and Simple Deluxe

brands and more, some of which have been designated as Amazon best seller product leaders and Amazon Choice products, among others.

Trends and Expectations

Product and Brand Development

We plan to increase investments

in product and brand development.

We actively evaluate potential acquisition opportunities of companies and product brand names that can

complement our product catalog and improve on existing products and supply chain efficiencies.

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 are 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.

Regulatory Environment

We sell hydroponic gardening

products to end users that may use such products in new and emerging industries or segments, including the growing of cannabis.

for hydroponic gardening products depends on the uncertain growth of these industries or segments due to varying, inconsistent, and rapidly

changing laws, regulations, administrative practices, enforcement approaches, judicial interpretations, and consumer perceptions.

example, certain countries and a total of 46 U.S.

states plus the District of Columbia have adopted frameworks that authorize, regulate

and tax the cultivation, processing, sale and use of cannabis for medicinal and/or non-medicinal use, including legalization of hemp and

CBD, while the U.S.

Controlled Substances Act and the laws of U.S.

states prohibit growing cannabis.

Demand for our products could be

impacted by changes in the regulatory environment with respect to such industries and segments.

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.

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.

iPower is a technology- and data-driven infrastructure

company with a foundation in supply chain services, real-world commerce, and partner-based logistics and fulfillment capabilities.

Company leverages its internal software, data, and operational experience, together with a network of procurement, logistics, fulfillment,

warehousing, and commerce partners, to support supply chain services, commerce infrastructure, and related business opportunities.

Building on our supply chain, software and operating

foundation, iPower is pursuing AI infrastructure acquisition, financing, equipment leasing and related opportunities as a current strategic

The Company also maintains a limited DAT position that we began implementing through digital asset purchases beginning in December

Management is currently reducing certain digital asset exposure and prioritizing direct AI infrastructure and related operating

opportunities, subject to the restrictions applicable to assets held in the Company’s controlled collateral account.

Digital Asset Treasury and Capital Allocation Strategy

iPower adopted an initial Digital Asset Treasury strategy

in June 2025 and began implementing the DAT strategy through purchases beginning in December 2025.

The DAT strategy was initially intended

to provide limited balance-sheet exposure to potential appreciation in digital assets and to diversify a portion of our treasury assets.

This overall strategy serves to govern our corporate treasury and capital-allocation activity.

The strategy, which is overseen by Company

management within board-approved policies, is intended to be flexible while helping us manage our capital allocation.

Our purpose is not

to operate a digital asset investment fund, exchange, broker-dealer, investment advisory business or customer custody business.

not presently engage an external investment manager to oversee or advise on our investments.

Our DAT assets are held with BitGo Trust

Company, Inc., a South Dakota chartered trust company, which is a full service digital asset infrastructure company.

In December 2025, we acquired

approximately 15.1 Bitcoin for approximately $1.325 million and approximately 301.1 Ethereum for approximately $0.884 million.

2026, we acquired approximately $1.0 million of USDai and subsequently converted or staked the USDai into sUSDai, a yield-bearing vault/share

token associated with the USD.AI protocol, in order to obtain exposure to potential returns associated with AI infrastructure financing.

We sold all sUSDai for approximately $1,002,381 and all Ethereum for approximately $563,391 on August 14, 2026.

Recent Developments

Adoption of Digital Treasury Strategy

On June 17, 2025, the Company

adopted a digital asset reserve, allocation and development strategy (the “Digital Treasury Strategy”) with the plan of creating

a Digital Treasury Strategy business.

To date, we have not effectuated the Digital Treasury Strategy business and do not know if it will

be effectuated.

As this Digital Treasury Strategy is a new planned addition to our business model, we cannot predict its success or know

whether we will continue with this strategy for the long term.

The Company will provide additional updates to shareholders when and if

we do effectuate such strategy.

Effective October 27, 2025,

the Company effectuated the 1-for-30 reverse stock split of its common stock (the “2025 Reverse Split”), under which every

30 issued and outstanding pre-split shares were automatically reclassified into one post-split share with no change in par value, resulting

in a proportionate adjustment to outstanding equity awards, warrants and exercise prices.

On December 22, 2025, the

Company entered into the Purchase Agreement with the Investor 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, in which the Investor agreed to initially purchase

(i) a Series A Convertible Note in the aggregate original principal amount of $5,184,024, and shares of common stock issuable pursuant

to the terms of the Series A Convertible Notes in reliance upon the exemption from securities registration afforded by Section 4(a)(2)

of the Securities Act, and Rule 506(b) of Regulation D as promulgated thereunder, and (ii) $1,815,976 aggregate principal amount of a

Series B Convertible Note, and shares of common stock issuable pursuant to the terms of the Series B Convertible Notes in a registered

direct offering pursuant to a currently effective shelf registration statement on Form S-3 (File No.

333-274665), which was declared effective

by the SEC on September 29, 2023.

In addition, pursuant to the Purchase Agreement, the parties closed on an additional $5,000,000 of Series

A Convertible Notes upon effectiveness of a resale registration statement.

On July 6, 2026, the Company and the Investor entered into

an amendment to the Purchase Agreement for purposes of (i) increasing funds available under the facility by an additional original principal

amount of $2,000,000 and (ii) removing restrictions on the use of proceeds for any additional funds obtained through the facility.

On July 6, 2026, and

September 15, 2026, the Company and Investor consummated Additional Optional Closings.

At the Additional Optional Closings, the Company

received $4,700,000, excluding fees and expenses, in exchange for issuing a total of $5,000,000 aggregate principal amount of Series A

Notes 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.

The Series A Notes issued at the Additional Optional Closings were issued pursuant

to an exemption from registration in accordance with Regulation D of the Securities Act.

To date, in addition

to the Series B convertible note sold in December 2025, the Company has sold a total of $15,184,024 in Series A convertible notes, with

an additional $15,000,000 in Additional Series A Notes remaining available for issuance under the Convertible Note Facility.

Digital Offering

LLC has acted as placement agent and receives a 6% cash commission for each closing consummated under the Convertible Note Facility.

of October 2, 2026, the Investor has converted a total of $9,359,580 of the Series A Notes, resulting in the conversion of a total

of 849,697 shares at an average conversion price per share of $11.02 on a post-reverse stock split basis (accounting for a 1-for-8 reverse

stock split effectuated May 22, 2026 and a 1-for-9 reverse stock split effectuated August 7, 2026).

Pursuant to the Purchase Agreement

and the Series A Notes, certain subsidiaries of the Company are required to enter into a guaranty in favor of the Investor.

One such subsidiary,

iPower Smart LLC, entered into a guaranty in favor of the Investor dated December 23, 2025 (the “Guaranty”).

In connection

with the Company’s recent formation of iPower AI LLC, the Company has joined iPower AI LLC to the Guaranty pursuant to a Joinder

to Guaranty dated July 21, 2026.

On February 1, 2026, the Company entered into a Software

Asset Transfer Agreement with its then-wholly owned subsidiary, Global Product Marketing, Inc., a Nevada corporation, pursuant to which

GPM assigned, transferred and conveyed to the Company all of GPM’s right, title and interest in its Software Assets (as defined

in the agreement), and iPower assumed all outstanding vendor payables related to the Software Assets.

In addition, the Software Asset

Transfer Agreement granted GPM a non-exclusive worldwide, perpetual, irrevocable and royalty free license to use, reproduce and modify

the licensed software, thus allowing iPower and GPM to collaborate in the software development on a going forward basis.

Further, in the

event GPM resells the Original Software code (as defined in the agreement), GPM shall pay iPower 50% of the proceeds received in relation

to such sale.

Thereafter, on February 1, 2026, the Company entered into a stock purchase agreement with ETTS AI Investment LLC, a Nevada

limited liability company (“ETTS AI”), pursuant to which the Company sold all of its equity interest in GPM and its underlying

entities to ETTS AI in exchange for a $2.3 million promissory note (the “Promissory Note”).

The Promissory Note is repayable

in full in seven years, may be prepaid at any time, and repayment may be credited from time to time by purchase orders (as described below)

made under a Supply and Distribution Agreement, dated February 1, 2026, between the Company, GPM and ETTS AI.

Under the Supply and Distribution

Agreement, the Company and GPM agreed that the Company would act as exclusive supplier in the United States, Canada and Mexico for all

existing SKUs that have historically been distributed from iPower to GPM, thus allowing iPower to continue in its role of supplier to

GPM while divesting of the cost center associated with GPM’s sales function.

As supplier, iPower will charge GPM, as distributor,

a price mutually agreed on for each product and has the right to add up to 15% margin on top of the net cost.

In addition, GPM will charge

iPower a cooperative marketing fee, which will be defined in a subsequent agreement between the parties.

Under the Supply and Distribution

Agreement, payment on all purchaser orders are due within seven days of GPM’s receipt of payment from its customers and amounts

identified as “Margin” (i.e., the Company’s cost x margin on the SKUs purchased by GPM) may be applied on a dollar-for-dollar

as a credit/offset against the outstanding amounts owed under the Promissory Note.

The Supply and Distribution Agreement has a term of

five years and automatically renews thereafter for subsequent two year terms, unless 90 days’ notice is provided prior to the expiration

of such term.

In addition, the Supply and Distribution Agreement contains standard limitation on liability, indemnification and other

provisions standard for an agreement of this nature.

On June 30, 2026, the Company, GPM and ETTS AI entered

into a supplement to the Supply and Distribution Agreement pursuant to which GPM assumed $2,007,366.86 of accounts payable owed to the

Company’s suppliers in exchange for acquiring an equal amount of the Company’s existing inventory.

Additionally, the Supplement

releases the Company and GPM from exclusive sourcing and distribution obligations owed to one another under the Supply and Distribution

Effective May 22, 2026, the Company implemented a

1-for-8 reverse stock split of its common stock, under which every eight issued and outstanding pre-split shares were automatically reclassified

into one post-split share with no change in par value, resulting in a proportionate adjustment to outstanding equity awards, warrants,

and exercise prices.

Effective August 7, 2026, the Company implemented a 1-for-9 reverse

split of its common stock, under which every nine issued and outstanding pre-split shares were automatically reclassified into one post-split

share with no change in par value, resulting in a proportionate adjustment to outstanding equity awards, warrants and exercise prices

(the “August Reverse Split,” with the August Reverse Split, the May Reverse Split, and the 2025 Reverse Split together referred

to as the “Reverse Splits).

RESULTS OF OPERATIONS

For the fiscal years ended June 30, 2025

The following table presents

certain consolidated statement of operations information and presentation of that data as a percentage of change from period to period.

For the fiscal years ended June 30, 2026 and

The following table presents certain

consolidated statements of operations information and presentation of that data as a percentage of change from period to period.

June 30, 2026

June 30, 2025

Cost of goods sold

Revenues - product sales

Revenues - service income

Cost of revenues - product costs

Cost of revenues - service costs

Operating expenses

Loss from operations

Operating loss

(14,428,282 )

Other expenses

Loss before income taxes

(16,488,853 )

Income tax benefit

Net loss from continuing operations

(13,409,681 )

Discontinued operations, net of tax

(11,622,562 )

Non-controlling interest

Net loss attributable to iPower Inc.

(11,622,242 )

Other comprehensive loss

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$ (11,624,028 )

$ (1,676,431 )

Gross profit % of revenues

Gross profit % of revenues - product sales

Gross profit % of revenues - service income

Operating loss % of revenues

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% of revenues

Revenues for the year ended

June 30, 2025 decreased 23.15% to $66,142,779 as compared to $86,071,485 for the year ended June 30, 2024.

While pricing remained stable,

the decreased revenue mainly resulted from a decrease in sales volume during the year ended June 30, 2025 as the Company offered less

promotions due to lower inventory level as compared to the year ended June 30, 2024.

In addition, the Company also experienced significant

decrease in amazon orders due to uncertainty over tariffs during the second half of the fiscal year

ended June 30, 2025.

for the year ended June 30, 2026 decreased 68.4% to $19,956,938 as compared to $63,224,807 for the year ended June 30, 2025.

While pricing

remained stable, the decrease was mainly due to the combination of decreased orders from Amazon and disruption of product supply during

the year ended June 30, 2026.

The Company also experienced a significant decrease in Amazon orders due to uncertainty over tariffs during

the year ended June 30, 2026.

In addition, The Company completed a sale of its subsidiaries on February 1, 2026.

Costs of Goods Sold

Costs of goods sold for the

year ended June 30, 2025 decreased 22.53% to $37,149,085 as compared to $47,950,117 for the year ended June 30, 2024.

decrease was primarily due to a combination of the costs related to the logistics service income and the decrease in product sales, freight

costs, and lowered product costs resulted from management’s efforts on supply chain management.

Gross profit was $28,993,694

for the year ended June 30, 2025 as compared to $38,121,368 for the year ended June 30, 2024.

The gross profit ratio decreased to 43.84%

for the year ended June 30, 2025 from 44.29% for the year ended June 30, 2024.

The decrease in the

gross profit ratio was mainly driven by the combination of the increase in the logistics service costs and decrease in costs of goods

sold during the year ended June 30, 2025, as discussed above.

Costs of revenues for the year

ended June 30, 2026 decreased 55.6% to $15,917,641 as compared to $35,854,912 for the year ended June 30, 2025.

The decrease was primarily

due to a combination of the costs related to the logistics service income and the decrease in product sales as discussed above .

Gross profit was $4,039,297 for

the year ended June 30, 2026 as compared to $27,369,895 for the year ended June 30, 2025.

While the overall gross profit ratio of the

total sales revenues decreased to 20.2% for the year ended June 30, 2026 from 43.3% for the year ended June 30, 2025, the gross profit

ratio of product sales revenue for the year ended June 30, 2026 and 2025 was 20.8% and 45.6%, respectively.

The decrease in the gross

profit ratio was primarily driven by the decrease in the logistics service income, increase in product costs and the changes in the Company’s

business strategy resulting from the sale of the Company’s subsidiaries, as discussed above .

Operating Expenses

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The decrease was

mainly due to the combination of a decrease in selling and fulfillment expenses of $4.8 million as a result of decreased costs related

to advertising, merchant fees, rental expenses and delivery fees, and an increase in general and administrative expenses of $0.5 million,

which included payroll expenses, stock-based compensation expense, insurance expenses, allowance for credit losses, travel expenses and

other operating expenses.

The increase in general and administrative expenses was mainly due to the expansion of our vendor network and

development of the SuperSuite platform and an increased allowance for credit losses and inventory reserves of $1.2 million.

mainly due to the combination of (i)a decrease in selling and fulfillment expenses of $12.5 million as a result of decreased sales and

costs related to advertising, merchant fees, rental expenses and delivery fees, (ii) a decrease in general and administrative expenses

of $5.7 million, which included payroll expenses, stock-based compensation expense, insurance expenses, allowance for credit losses, travel

expenses and other operating expenses, and partially offset by $3.0 million of goodwill impairment loss recorded during the year.

decrease in general and administrative expenses was primarily attributable to the implementation of cost-cutting measures during the current

period, compared to the prior-year period, which included expenses related to the expansion of the Company’s vendor network, development

of the SuperSuite platform, allowance for credit losses and inventory reserves.

In addition, the decrease was attributable to changes

in the Company’s business strategy resulting from the sale of the Company’s subsidiaries, as discussed above.

Loss from Operations

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for the year ended June 30, 2026 as compared to $6,330,002 for the year ended June 30, 2025.

The decrease was due to the decrease in operating

expenses and in gross profit as discussed above.

The increase in loss was primary due to the

combination of decrease in sales and operating expenses as discussed above.

Other Expenses

Other expenses consist of interest

expense and other non-operating income (expenses).

Other expenses for the year ended June 30, 2025 were $366,273 as compared to $829,921

for the year ended June 30, 2024.

The decrease in other expenses was mainly due to decrease in other non-operating loss of $120,258, and

in interest, including amortization of debt discount, on the revolving loan of $352,224 during the year ended June 30, 2024 as a result

of the decreasing balance on the revolving loan.

Other expenses consists of

interest expense and other non-operating income (expenses).

Other expenses for the year ended June 30, 2026 was $2,060,571 as compared

to $367,439 for the year ended June 30, 2025.

The increase was primarily attributable to an approximately $2.3 million loss on extinguishment

of debt associated with conversions of convertible notes, an approximately $0.9 million unrealized loss on digital assets, and an approximately

$0.4 million increase in interest expense, partially offset by an approximately $0.4 million increase in other non-operating income, $0.8

million of refunds for Employee Retention Credits, and an approximately $0.7 million gain from the change in fair value of derivative

Net Loss Attributable to iPower Inc.

1 unchanged sentence

for the year ended June 30, 2026 was $11,622,242 as compared to $4,968,288 for the year ended June 30, 2025, representing an increase

of net loss of $3,440,129.

The increase was primarily due to the decrease in gross profit and operating expenses as discussed above.

in net loss of $6,653,954, which was primarily due to the combination of increase in loss from operations, the increase in other expenses,

and partially offset by the gain from discontinued operations resulting from the sale of the Company’s subsidiaries, as discussed

Comprehensive loss Attributable to iPower

2 unchanged sentences

for the year ended June 30, 2026 was $11,624,028 as compared to $4,717,775 for the year ended June 30, 2025, representing

an increase of comprehensive loss of $3,041,344.

The increase was due to the reasons discussed above, along with other comprehensive income

of $250,513 as a result of foreign currency translation adjustments resulting from the translation of RMB, the functional currency of

our VIE in the PRC, to USD, the reporting currency of the Company.

an increase in comprehensive loss of $6,906,253, which was due to the reasons discussed above, along with a decrease in other comprehensive

income of $252,299 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

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During the fiscal year ended

June 30, 2025 we primarily funded our operations with cash and cash equivalents generated from operations, as well as through borrowing

under our credit facility from JPMorgan Chase Bank (“JPM”).

Additionally, on June 18, 2024, we closed on the Registered Direct

offering of 2,083,334 Shares and a concurrent Private Placement of Warrants to purchase 2,083,334 Warrant Shares, which were sold for

gross aggregate proceeds of $5,000,002.

June 30, 2026 we primarily funded our operations with cash and cash equivalents generated from operations, as well as through the convertible

note facility established in December 2025.

We had cash and cash equivalents of $478,042 as of June 30, 2026, representing a $1,199,837

decrease from $1,677,879 in cash as of June 30, 2025.

The cash decrease was primarily due to the result of cash used in operating activities,

investing activities and financing activities resulting from our payments to offering cost settlement, pay down the short-term loans -

related party and part of the JPM revolving line of credit.

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 the “Risk Factors”

section in this Annual Report.

Our cash requirements consist

primarily of day-to-day operating expenses and obligations with respect to warehouse leases.

We lease all 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.

Currently, we have approximately $1.8 million in unused

credit under the revolving line with JPM.

The cash decrease 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 off the JPM revolving line of

credit and proceeds from convertible notes.

In assessing our liquidity

requirements for the twelve months following the issuance of these consolidated financial statements, management considered the

Company’s expected cash flows from operations, available financing sources, and significant contractual obligations.

Company has approximately $4.7 million of financing proceeds raised subsequent to June 30, 2026, as well as approximately $15.0

million of remaining optional financing capacity under its existing financing arrangement, subject to the investors’ election

and the satisfaction or waiver of applicable closing conditions.

The Company’s significant cash requirements include

approximately $5.8 million of convertible notes outstanding, which do not mature until December 2027 through September 2028,

although the notes require monthly interest payments and may be converted into common stock in accordance with their terms, and

approximately $0.8 million of net lease payments expected during fiscal 2027.

Although the Company incurred a net loss of

approximately $11.6 million and negative operating cash flows during the year ended June 30, 2026, management expects its future

cash requirements to be reduced as a result of the cost reductions and other completed restructuring actions.

Based on the Company’s

current operating plan, cash and cash equivalents, expected cash flows from operations, financing proceeds received subsequent to year-end,

and expected cash requirements, management believes that the Company will have sufficient liquidity to meet its obligations and fund

its operations for at least the next twelve months.

However, the Company’s liquidity and ability to meet its obligations and fund

its capital requirements are dependent on its future financial performance, which is subject to general economic, financial and other

factors beyond its control, including inflation and a potential recession.

The Company’s anticipated funding requirements could

increase as a result of such factors.

See “ Risk Factors ” in this Annual Report.

Given our current working

capital position and available funding from our revolving credit line and proceeds from our June Registered Direct offering, we believe

we will be able to manage through the current challenges by managing payment terms with customers and vendors.

capital position, we believe we will be able to manage through the current challenges by managing payment terms with customers and vendors.

Working Capital

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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.

past historical trends will remain in place through the balance of the fiscal year with working capital remaining near this level for

the foreseeable future.

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 (used in) provided by operating activities for the years

provided by operations is from the sale of products.

Our primary uses of cash from operating activities include payments to suppliers

for products, payments to employees for compensation, and other general expenses.

Net cash used in operating activities for the years

ended June 30, 2026 and 2025 was $163,466 and $579,187, respectively.

The decrease in cash provided by operating activities mainly

resulted from a combination of an increase in net loss , a decrease in cash received from customers and an increase in cash paid for cost

of revenues and operating expenses.

The decrease in cash used in operating activities mainly resulted

from an increase in non-cash adjustments to net loss and cash paid for cost of revenues and operating expenses, which was partially offset

by an increase in cash received from customers.

Investing Activities

1 unchanged sentence

2026 and 2025, net cash used in investing activities was $4,681,625 and $2,042,250, respectively.

The increase was mainly due to the prepayments

made for software developments and investment in joint venture during the year ended June 30, 2025

The increase was mainly due to deconsolidation

of our VIE and subsidiaries cash, payments made for investment in a joint venture, purchase of digital assets, and prepayments made for

software developments during the year ended June 30, 2026.

Financing Activities

Net cash used in financing

activities was $2,999,362 and $2,397,801 for the years ended June 30, 2025 and 2024, respectively.

The increase in net cash outflows was

primarily attributable to lower financing inflows in fiscal 2025 as compared to fiscal 2024.

Financing activities during fiscal 2024 included

significant sources of cash that did not recur in fiscal 2025, including $4.5 million in net proceeds from the issuance of common stock

and $2.4 million in proceeds from related party borrowings.

These inflows were partially offset in fiscal 2024 by net repayments of $5.1

million on revolving loans and $3.75 million on short-term borrowings.

Net cash provided by (used

in) in financing activities was $6,543,407 and ($2,999,362), respectively, for the years ended June 30, 2026 and 2025.

The increase in

net cash provided by financing activities was primarily due to a combination of proceeds from the Company’s convertible note financing

and payments made on the revolving loan.

OFF-BALANCE SHEET ARRANGEMENTS

29 unchanged sentences

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 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 sale is recognized.

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 sale is recognized.

Sales return allowances are estimated based on historical amounts and are recorded

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Shipping and handling costs are recorded as selling expenses.

Accounts receivable, net

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.

Management reviews its accounts receivable balances each reporting period to determine if an allowance for credit

losses 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.

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.

Management reviews its accounts receivable balances each reporting period to determine if an allowance for credit losses

The Company evaluates the creditworthiness

of all of its customers individually before accepting them and continuously monitors the recoverability of accounts receivable.

are any indicators that a customer may not make payment, the Company may consider making provision for non-collectability for that particular

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 following are some of the factors that

the Company develops allowance for credit losses:

the customer fails to comply with its payment schedule;

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other objective evidence indicates non-collectability of the accounts receivable.

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

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.

event we recover amounts previously written off, we will reduce the specific allowance for credit losses.

Inventory, 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

The Company’s policy is to include as a part of inventory and cost 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 review inventory and consider 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.

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 is provided by the Company after February 15, 2022.

term of the agreements, which run for a term of 10 years from February 2022 to February 2032, 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 variable interest entity (“VIE”) of the Company

and the financial statements of DHS have been consolidated from the date such control existed, February 15, 2022.

See Note 4 for details

on acquisition.

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

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.

The Company engaged an independent third-party valuation firm in August

2022 to conduct an evaluation of goodwill impairment for the Company as a whole at the consolidated reporting unit level as of June 30,

2022, which evaluation was conducted prior to the Company’s filing of its Annual Report on Form 10-K for the period ended June 30,

Due to the decrease in the Company’s share price subsequent to the filing of the June 30, 2022 Form 10-K and the net loss

incurred during the quarter ended September 30, 2022, the Company engaged the same valuation firm to review goodwill for impairment.

on this review, the Company concluded an impairment loss of $3,060,034 as of September 30, 2022 was required.

The impairment amount was

determined based on the discounted cash flows with the revised projections reflecting the increase in freight and storage costs in the

current interim quarter.

The Company also considered the Market Capital Method, which is an alternative market approach, suggested the

Company’s goodwill is partially impaired.

Subsequent to the quarter

ended September 30, 2022, during the period ended June 30, 2023, the Company performed a qualitative and quantitative goodwill impairment

analysis following the steps laid out in ASC 350-20-35-3C and noted no goodwill impairment.

As of June 30, 2025 and 2024, the goodwill

balance amounted to $3,034,110 and $3,034,110, respectively.

Intangible Assets, net

Finite life intangible assets

at June 30, 2024 include a covenant not to compete, supplier relationship 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 followings:

Covenant Not to Compete

Supplier relationship

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 years ended June 30, 2025 and 2024.

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.

Digital Assets

The Company accounts for its

digital assets, which, as of the date of this report, are comprised of Bitcoin (“BTC”) only, 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).

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.

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

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 year ended June 30, 2026:

Derivative Liability

Balance as of June 30, 2025

Initial fair value upon issuance of convertible notes

Extinguishment of derivative liability upon conversion of convertible notes

Gain on change in fair value of derivative liability

Balance as of June 30, 2026

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

“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.

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condition in the award has not been satisfied.

The Company will recognize

forfeitures of such equity-based compensation as they occur.

The Company will recognize forfeitures

of such equity-based compensation as they occur.

The Company accounts for income

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are utilized.

The Company believes that

our income tax filing positions and deductions will be sustained on audit and do not anticipate any adjustments that will result in a

material change to its financial position.

The Company believes that our

income tax filing positions and deductions will be sustained on audit and do 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.

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.

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

In December 2023, The FASB

issued ASU 2023-09, Improvements to Income Tax Disclosures.

Under this ASU, public business entities must annually “(1) disclose

specific categories in the rate reconciliation and (2) provide additional information for reconciling items that meet a quantitative threshold

(if the effect of those reconciling items is equal to or greater than 5 percent of the amount computed by multiplying pretax income [or

loss] by the applicable statutory income tax rate).” This ASU’s amendments are effective for public business entities for

annual periods beginning after December 15, 2024.

For entities other than public business entities, the amendments are effective for annual

periods beginning after December 15, 2025.

Entities are permitted to early adopt the standard “for annual financial statements that

have not yet been issued or made available for issuance.” The amendments should be applied on a prospective basis.

Retrospective

application is permitted.

The Company does not expect the adoption of this standard to have a material impact on its consolidated financial

In November 2023, The FASB

issued ASU 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures.

The amendments apply to all public

entities that are required to report segment information in accordance with Topic 280, Segment Reporting.

The amendments in this ASU are

intended to improve reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses.

The key amendments:

Require that a public entity disclose, on an annual and interim basis, significant segment expenses that are regularly

provided to the chief operating decision maker (CODM) and included within each reported measure of segment profit or loss.

that a public entity disclose, on an annual and interim basis, an amount for other segment items by reportable segment and a description

of its composition.

The other segment items category is the difference between segment revenue less the significant expenses disclosed

and each reported measure of segment profit or loss.

Require that a public entity provide all annual disclosures about a reportable

segment’s profit or loss and assets currently required by FASB Accounting Standards Codification® Topic 280, Segment Reporting,

in interim periods.

Clarify that if the CODM uses more than one measure of a segment’s profit or loss in assessing segment performance

and deciding how to allocate resources, a public entity may report one or more of those additional measures of segment profit.

at least one of the reported segment profit or loss measures (or the single reported measure, if only one is disclosed) should be the

measure that is most consistent with the measurement principles used in measuring the corresponding amounts in the public entity’s

consolidated financial statements.

Require that a public entity disclose the title and position of the CODM and an explanation of how

the CODM uses the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to allocate resources.

Require that a public entity that has a single reportable segment provide all the disclosures required by the amendments in the ASU

and all existing segment disclosures in Topic 280.

This ASU is effective for fiscal years beginning after December 15, 2023, and interim

periods within fiscal years beginning after December 15, 2024.

Early adoption is permitted.

A public entity should apply the amendments

retrospectively to all prior periods presented in the financial statements.

Upon transition, the segment expense categories and amounts

disclosed in the prior periods should be based on the significant segment expense categories identified and disclosed in the period of

The Company does not expect the adoption of this standard to have a material impact on its consolidated financial statements.

In October 2023, the FASB

issued ASU 2023-06, Disclosure Improvements:

Codification Amendments in Response to the SEC's Disclosure Update and Simplification Initiative.

This ASU incorporates certain U.S.

Securities and Exchange Commission (SEC) disclosure requirements into the FASB Accounting Standards

Codification™ (“Codification”).

The amendments in the ASU are expected to clarify or improve disclosure and presentation

requirements of a variety of Codification Topics, allow users to more easily compare entities subject to the SEC’s existing disclosures

with those entities that were not previously subject to the requirements, and align the requirements in the Codification with the SEC’s

In SEC Release No.

33-10532, Disclosure Update and Simplification, issued August 17, 2018, the SEC referred certain of its

disclosure requirements that overlap with, but require incremental information to, generally accepted accounting principles to the FASB

for potential incorporation into the Codification.

The ASU incorporates into the Codification 14 of the 27 disclosures referred by the

They modify the disclosure or presentation requirements of a variety of Topics in the Codification.

The requirements are relatively

narrow in nature.

Some of the amendments represent clarifications to, or technical corrections of, the current requirements.

the variety of Topics amended, a broad range of entities may be affected by one or more of those amendments.

For entities subject to the

SEC’s existing disclosure requirements and for entities required to file or furnish financial statements with or to the SEC in preparation

for the sale of or for purposes of issuing securities that are not subject to contractual restrictions on transfer, the effective date

for each amendment will be the date on which the SEC removes that related disclosure from its rules.

For all other entities, the amendments

will be effective two years later.

However, if by June 30, 2027, the SEC has not removed the related disclosure from its regulations,

the amendments will be removed from the Codification and not become effective for any entity.

The Company does not expect the adoption

of this standard to have a material impact on its consolidated financial statements.

In September 2022, FASB issued

ASU 2022-04, Liabilities—Supplier Finance Programs (Subtopic 405-50):

Disclosure of Supplier Finance Program Obligations.

The amendments

in this ASU require that a company that uses a supplier finance program in connection with the purchase of goods or services disclose

sufficient information about the program to allow a user of financial statements to understand the program’s nature, activity during

the period, changes from period to period, and potential magnitude.

ASU 2022-04 is effective for fiscal years, including interim periods

within those fiscal years, beginning after December 15, 2022, except for the rollforward of the supplier finance program obligations,

which is effective for fiscal years beginning after December 15, 2023.

Early adoption is permitted.

An entity should apply ASU No.

retrospectively to all periods in which a balance sheet is presented, except for the obligation rollforward, which should be applied prospectively.

The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

In June 2022, FASB issued ASU

2022-03, Fair Value Measurement (Topic 820):

Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions.

amendments in this ASU clarify the guidance in ASC 820 on the fair value measurement of an equity security that is subject to a contractual

sale restriction and require specific disclosures related to such an equity security.

This standard is effective for fiscal years beginning

after December 15, 2024.

The Company does not expect the adoption of this standard to have a material impact on its consolidated financial

In August 2020, the FASB issued

ASU 2020-06, “Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts

in Entity’s Own Equity (Subtopic 815-40).” This ASU reduces the number of accounting models for convertible debt instruments

and convertible preferred stock, as well as amend the guidance for the derivatives scope exception for contracts in an entity’s

own equity to reduce form-over-substance-based accounting conclusions.

In addition, this ASU improves and amends the related EPS guidance.

This standard is effective for the Company on July 1, 2024, including interim periods within those fiscal years.

Adoption is either a

modified retrospective method or a fully retrospective method of transition.

The Company does not expect the adoption of this standard

to have a material impact on the consolidated financial statements.

In March 2020 and January

2021, the FASB issued ASU No.

2020-04, Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial

Reporting and ASU No.

2021-01, Reference Rate Reform (Topic 848):

Scope, respectively (collectively, “Topic 848”).

provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions that reference

the London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued because of reference rate

The expedients and exceptions provided by Topic 848 are effective for all entities as of March 12, 2020 through December 31, 2022.

In December 2022, the FASB issued ASU 2022-06, Reference Rate reform (Topic 848):

Deferral of the Sunset Date of Topic 848, which deferred

the sunset date of Topic 848, Reference Rate Reform to December 31, 2024, after which entities will no longer be permitted to apply the

relief in Topic 848.

The Company does not expect the adoption of this standard to have a material impact on the Company's consolidated

financial statements.

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.

than as set forth under Note 2 to the 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.

Recent Financings

Asset-based revolving loan

On November 12, 2021, the

Company entered into a Credit Agreement with JPMorgan Chase Bank, N.A.

(“JPM”), as administrative agent, issuing bank and

swingline lender, for an asset-based revolving loan (“ABL”) of up to $25 million with key terms listed as follows:

On November 12, 2021, the Company

entered into a Credit Agreement with JPMorgan Chase Bank, N.A.

(“JPM”), as administrative agent, issuing bank and swingline

lender, for an asset-based revolving loan (“ABL”) of up to $25 million with key terms listed as follows:

Borrowing base equal to the sum of

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Up to 85% of eligible trade accounts receivable

Up to the lesser of (i) 65% of cost of eligible inventory or (ii) 85% of net orderly liquidation value of eligible inventory

Up to the lesser of (i) 65% of cost of eligible inventory or (ii) 85% of

net orderly liquidation value of eligible inventory

Interest rates of between LIBOR plus 2% and LIBOR plus 2.25% depending on utilization

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Maturity Date of November 12, 2024

In addition, the ABL

includes an accordion feature that allows the Company to borrow up to an additional $25 million.

To secure complete payment and

performance of the secured obligations, the Company granted a security interest in all of its right, title and interest in, to and

under all of the Company’s assets as collateral to the ABL.

Upon closing of the ABL, the Company paid $796,035 financing fees

including 2% of $25.0 million or $500,000 paid to its financial advisor.

The financing fees are recorded as debt discount and are to

be amortized over three years as financing expenses, the term of the ABL.

Below is a summary of the

interest expense recorded for the years ended June 30, 2025 and 2024:

In addition, the ABL included

an accordion feature that allows the Company to borrow up to an additional $25.0 million.

To secure complete payment and performance of

the secured obligations, the Company granted a security interest in all of its right, title and interest in, to and under all of the Company’s

assets as collateral to the ABL.

Upon closing of the ABL, the Company paid $796,035 in financing fees, including 2% of $25.0 million or

$500,000 paid to its financial advisor.

The financing fees are recorded as debt discount and are to be amortized over the three-year term

of the ABL as interest expense.

Below is a summary of the interest

expense recorded for the years ended June 30, 2026 and 2025:

Accrued interest

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Amortization of debt discount

As of June 30, 2025 and 2024,

the outstanding amount of the JPM revolving loan payable, net of debt discount and including interest, was $3,737,602 and $5,500,739,

respectively.

February 16, 2022, in connection

with the acquisition of Anivia Limited, the Company and JPM entered into an amendment to the Pledge and Security Agreement, pursuant to

which the Company pledged 65% of its ownership interest in Anivia Limited and its subsidiaries.

On October 7, 2022, the Company

entered into a second amendment to the credit agreement and consent (the “Second Amendment to the Credit Agreement”), originally

dated November 12, 2021, as amended, with JPM, as administrative agent and lender.

The Company entered into the Second Amendment to the

Credit Agreement primarily for the purpose of changing the interest rate repayment calculations from LIBOR to the Secured Overnight Financing

Rate, or SOFR, which adjustment had originally been anticipated under the terms of the original Credit Agreement.

In addition, two of

the negative covenants set forth in the original credit agreement were amended in order to (i) adjust the definition of “Covenant

Testing Trigger Period” to increase the required cash availability from $3,000,000 to $4,000,000, or 10% of the aggregate revolving

commitment for the preceding 30 days, and (ii) require that the Company will not and will not permit any of its subsidiaries, after reasonable

due diligence and due inquiry, to knowingly sell their products, inventory or services directly to any commercial businesses that grow

or cultivate cannabis;

it being acknowledged, however, that the Company does not generally conduct due diligence on its individual retail

On November 11, 2022, the

Company and JPM entered into a default waiver and consent agreement (the “Waiver Letter”) pursuant to which the parties recognized

that the Company was in default on its failure to satisfy the minimum Excess Availability requirement of $7,500,000, as defined in the

Credit Agreement, and deliver a certificate to JPM accurately reflecting the Excess Availability (together, the “Existing Defaults”).

Under the terms of the Waiver Letter, JPM agreed to waive the right to enforce an event of default based on the aforementioned Existing

As of June 30, 2024, the Company was in compliance with the ABL covenants.

However, as of June 30, 2025, the Company

was in default as a result of covenant violations under the ABL facility.

On November 8, 2024, the

Company entered into a third amendment (the “Third Amendment”) to that certain credit agreement, initially entered into by

and among the Company and its subsidiaries and JPMorgan Chase Bank, N.A., as administrative agent for the Lender and a lender (the “Administrative

dated November 12, 2021, as amended, with JPMorgan.

The Company entered into the Second Amendment to the Credit Agreement primarily for

the purpose of changing the interest rate repayment calculations from LIBOR to the Secured Overnight Financing Rate, or SOFR, which adjustment

had originally been anticipated under the terms of the original Credit Agreement.

In addition, two of the negative covenants set forth

in the original Credit Agreement were amended in order to (i) adjust the definition of “Covenant Testing Trigger Period” to

increase the required cash availability from $3,000,000 to $4,000,000, or 10% of the aggregate revolving commitment for the preceding

30 days, and (ii) require that the Company will not and will not permit any of its subsidiaries, after reasonable due diligence and due

inquiry, to knowingly sell their products, inventory or services directly to any commercial businesses that grows or cultivates cannabis;

it being acknowledged, however, that the Company does not generally conduct due diligence on its individual retail customers.

On November 8, 2024, the Company

entered into a third amendment (the “Third Amendment”) to that certain credit agreement, initially entered into by and among

the Company and its subsidiaries and JPMorgan Chase Bank, N.A., as administrative agent for the Lender and a lender (the “Administrative

Agent” or “Lender”), on November 12, 2021 (the “Credit Agreement”).

1 unchanged sentence

amended, among other things, (i) the defined term “Aggregate Revolving Commitment” to mean $15,000,000, and (ii) extended

the maturity date to “November 8, 2027 or any earlier date on which the Revolving Commitments are reduced to zero or otherwise

terminated pursuant to the terms hereof.” The borrowing rate is SOFR plus 2.25% to 2.50% depending on utilization of the borrowing

availability.

Promissory note payable

On February 15, 2022, as

part of the consideration for the acquisition of Anivia, the Company issued a two-year unsecured 6% subordinated promissory note, payable

in equal semi-annual installments commencing August 15, 2022 (the “Purchase Note”).

The principal amount of the Purchase

Note was $3.5 million with a fair value of $3.6 million as of February 15, 2022, the issuance date.

In October 2022, the Company paid

the first installment of $875,000, and in February 2023, the Company paid the second installment of $875,000.

In August 2023, the Company

paid the third installment of $875,000.

In February 2024, the Company paid the fourth installment of $875,000.

For the year ended June

30, 2025, the Company recorded accrued interest of $0 and amortization of note premium of $0.

For the year ended June 30, 2024, the Company

recorded accrued interest of $39,429 and amortization of note premium of $31,602.

In February 2024, the note premium was fully amortized,

and the outstanding balance of the principal and accrued interest of $275,679 was fully paid off.

As of June 30, 2025 and 2024, the total

outstanding balance of the Purchase Note was $0.

the maturity date to “November 8, 2027 or any earlier date on which the Revolving Commitments are reduced to zero or otherwise terminated

pursuant to the terms hereof.” The borrowing rate is SOFR plus 2.25% to 2.50% depending on utilization of the borrowing availability.

On December 7, 2025, the Company

repaid in full the outstanding amount resulting in the termination of the ABL.

As of June 30, 2026 and 2025,

the outstanding amount of the ABL, which was classified as current revolving loan payable, including interest payable, was $0 and $3,737,602,

respectively.

Short-term loans payable

On July 8, 2023, the Company

entered into an agreement with White Cherry Limited (“White Cherry”), a BVI company owned by the former owner of DHS, for

an on-demand, unsecured and subordinated loan (“On-demand Loan”).

Pursuant to the agreement, White Cherry agreed to loan the

Company the amount requested.

The On-demand Loan bears interest at the rate of the Secured Overnight Financing Rate, or SOFR, plus 1%

The On-demand Loan is due in 30 days upon receipt of White Cherry’s notice of repayment.

On July 16, 2023, the Company

borrowed $2,000,000 from White Cherry, repaid $1 million on July 31, 2023 and $1 million on January 31, 2024.

For the year ended June

30, 2024, the Company recorded interest of $32,911.

As of June 30, 2025, the outstanding balance of the On-demand Loan was fully paid

On April 8, 2024, the Company

6 unchanged sentences

30 days upon receipt of the Investor’s notice of repayment.

For the year ended June 30, 2024, the Company borrowed $483,599 and

recorded interest expense of $7,615.

For the year ended June 30, 2025, the Company recorded interest expense of $3,733 .

As of June 30,

2024, the outstanding balance of the On-demand Loan 2, including accrued interest of $7,615, was $491,214.

As of June 30, 2025, the On-demand

Loan 2 had been fully paid off.

On April 1, 2024, the Company

borrowed $350,000 short-term loan (“RP Loan”) from an entity owned by Mr.

Allan Huang, one of the majority shareholders of

For the years ended June 30, 2026 and 2025, the Company recorded interest

expense of $0 and $3,733, respectively.

As of June 30, 2026 and 2025, the On-demand Loan 2 had been fully paid off.

On July 9, 2025, the Company

borrowed $500,000 as a short-term loan (“RP Loan 2”) from an entity owned by Mr.

Allan Huang, one of the shareholders of the

The RP Loan 2 bears no interest and is due upon receipt of request of repayment.

As of June 30, 2025 and 2024, the outstanding

balance of the RP Loan was $0 and $350,000.

June 2024 Registered Direct Offering

On June 18, 2024, the Company,

closed on a Registered Direct Offering of 2,083,334 Shares and a concurrent Private Placement of Warrants to purchase 2,083,334 Warrant

Shares, which were sold for gross aggregate proceeds of $5,000,002.

The Shares were sold pursuant to a prospectus supplement, filed on

June 18, 2024, to the Registration Statement on Form S-3, originally filed on September 25, 2023, with the SEC (File No.

and declared effective by the SEC on September 29, 2023.

The Warrants, which were issued pursuant to an exemption from registration pursuant

to Section 4(a)(2) or Regulation D on the Securities Act, have a term of five years and are immediately exercisable at $2.40 per share.

The Shares and Warrants were sold to a purchaser pursuant to a securities purchase agreement, dated June 16, 2024, between the Company

and the purchaser (the “Purchase Agreement”).

Roth Capital Partners, LLC (the “Placement Agent”) acted as placement

agent, pursuant to a placement agency agreement between the Company and the Placement Agent dated June 16, 2024 (the “Placement

Agency Agreement”).

The Company paid the Placement Agent as compensation a cash fee equal to 6.5% of the gross proceeds of the offering

plus reimbursement of certain expenses and legal fees.

The net proceeds of the offering, after deducting the Placement Agent’s fees

and expenses and other offering expenses payable by the Company, is approximately $4,543,089.

A holder will not have the

right to exercise any portion of the Warrants if the holder (together with its affiliates) would beneficially own in excess of 4.99% (or,

at the election of the holder, 9.99%), respectively, of the number of shares of common stock outstanding immediately after giving effect

to the exercise, as such percentage ownership is determined in accordance with the terms of the Warrants.

However, upon notice from the

holder to the Company as described in the Purchase Agreement, the holder may increase the beneficial ownership limitation, which may not

exceed 9.99% of the number of shares of common stock outstanding immediately after giving effect to the exercise of Warrants.

According to the terms of

the Purchase Agreement, on July 9, 2024, we filed a Form S-1 to register the resale, from time to time, of up to an aggregate of 2,083,334

Warrant Shares, issuable upon the exercise of the Warrants issued in the Private Placement by the selling stockholder named therein.

resale registration statement was declared effective by the SEC on July 26, 2024.

As of June 30, 2024, no Warrants have been exercised.

Emerging Growth Company

We are an “emerging

growth company,” as defined in the JOBS Act.

Accordingly, certain specified reporting and other regulatory requirements for public

companies are reduced for businesses that meet the qualifications for emerging growth companies.

These provisions include:

an exemption from the auditor attestation requirement in the assessment of our internal controls over financial reporting required by Section 404 of the Sarbanes-Oxley Act of 2002;

an exemption from the adoption of new or revised financial accounting standards until they would apply to private companies;

an exemption from compliance with any new requirements adopted by the Public Company Accounting Oversight Board, or the PCAOB, requiring mandatory audit firm rotation or a supplement to the auditor’s report in which the auditor would be required to provide additional information about our audit and our financial statements;

reduced disclosure about our executive compensation arrangements.

As of June 30, 2026, The RP Loan 2 had been

fully paid off.

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 are 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 was

used to pay off the Company’s existing ABL with JPMorgan Chase Bank, N.A.

(“JPMorgan”).

For year ended June 30, 2026,

the Company recorded interest expense of $29,250, respectively.

As of June 30, 2026, the Promissory Notes had been fully paid off.

November 28, 2025, the Company

borrowed $50,000 from an entity controlled by the Company’s CEO, Chenlong Tan, for short-term liquidity needs.

The borrowing was

non-interest-bearing and repayable on demand.

As of June 30, 2026, the borrowing had been fully repaid.

December 2025 Convertible Notes Offering

On December 22, 2025, the

Company entered into the Purchase Agreement with the Investor 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, in which the Investor agreed to initially purchase

(i) a Series A Convertible Note in the aggregate original principal amount of $5,184,024, with shares of common stock issuable upon conversion

pursuant to the terms of the Series A Convertible Notes in reliance upon the exemption from securities registration afforded by Section

4(a)(2) of the Securities Act, and Rule 506(b) of Regulation D as promulgated thereunder, and (ii) $1,815,976 aggregate principal amount

of a Series B Convertible Note, and shares of common stock issuable upon conversion pursuant to the terms of the Series B Convertible

Notes in a registered direct offering pursuant to a currently effective shelf registration statement on Form S-3 (File No.

which was declared effective by the SEC on September 29, 2023.

In addition, pursuant to the Purchase Agreement, the parties closed on

an additional $5,000,000 of Series A Convertible Notes upon effectiveness of a resale registration statement.

On July 6, 2026, the Company

and the Investor entered into an amendment to the Purchase Agreement for purposes of (i) increasing funds available under the facility

by an additional original principal amount of $2,000,000 and (ii) removing restrictions on the use of proceeds for any additional funds

obtained through the facility.

As of the date of this Annual

Report, in addition to the Series B convertible note sold in December 2025, the Company has sold a total of $15,184,024 in Series A convertible

notes, with an additional $15,000,000 in Additional Series A Notes remaining available for issuance under the Convertible Note Facility.

Digital Offering LLC has acted as placement agent and receives a 6% cash commission for each closing consummated under the Convertible

Note Facility.

As of October 2, 2026, the Investor has converted a total of $9,359,580 of the Series A Notes, resulting in the conversion

of a total of 849,697 shares at an average conversion price per share of $11.02 on a post-reverse stock split basis (accounting for a

1-for-8 reverse stock split effectuated May 22, 2026 and a 1-for-9 reverse stock split effectuated August 7, 2026).

QUANTITATIVE AND QUALITATIVE DISCLOSURES

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What changed 10-K

Item 7. Management’s Discussion and Analysis