Annual Report for Fiscal Year Ending June 30, 2026 (Form 10-K)

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 financial statements and the related notes thereto included elsewhere herein. The 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 Annual 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

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. The 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 focus. The Company also maintains a limited DAT position that we began implementing through digital asset purchases beginning in December 2025. 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. We do 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. In June 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

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. 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).

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 Agreement.

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, 2026 and 2025

The following table presents certain consolidated statements of operations information and presentation of that data as a percentage of change from period to period.

		Year Ended June 30, 2026				Year Ended June 30, 2025				Variance
Revenues - product sales		$	18,423,316				58,600,334				(68.6%	)
Revenues - service income			1,533,622				4,624,473				(66.8%	)
			19,956,938				63,224,807				(68.4%	)
Cost of revenues - product costs			14,584,960				31,897,029				(54.3%	)
Cost of revenues - service costs			1,332,681				3,957,883				(66.3%	)
			15,917,641				35,854,912				(55.6%	)
Gross profit			4,039,297				27,369,895				(85.2%	)
Operating expenses			18,467,579				33,699,897				(45.2%	)
Operating loss			(14,428,282	)			(6,330,002	)			127.9%
Other expenses			(2,060,571	)			(367,439	)			460.8%
Loss before income taxes			(16,488,853	)			(6,697,441	)			146.2%
Income tax benefit			(3,079,172	)			(1,348,313	)			128.4%
Net loss from continuing operations			(13,409,681	)			(5,349,128	)			150.7%
Discontinued operations, net of tax			1,787,119				371,582				380.9%
Net loss			(11,622,562	)			(4,977,546	)			133.5%
Non-controlling interest			(320	)			(9,258	)			(96.5%	)
Net loss attributable to iPower Inc.			(11,622,242	)			(4,968,288	)			133.9%
Other comprehensive loss			(1,786	)			250,513				(100.7%	)
Comprehensive loss attributable to iPower Inc.		$	(11,624,028	)			(4,717,775	)			146.4%
Gross profit % of revenues - product sales			20.8%				45.6%
Gross profit % of revenues - service income			13.1%				14.4%
Operating loss % of revenues			(72.3%	)			(10.0%	)
Net loss attributable to iPower Inc. % of revenues			(58.2%	)			(7.9%	)

Revenues

Revenues 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 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

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

Operating expenses for the year ended June 30, 2026 decreased 45.2% to $18,467,579 as compared to $33,699,897 for the year ended June 30, 2025. The decrease was 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. The 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

Loss from operations was $14,428,282 for the year ended June 30, 2026 as compared to $6,330,002 for the year ended June 30, 2025. The increase in loss was primary due to the combination of decrease in sales and operating expenses as discussed above.

Other Expenses

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 liabilities.

Net Loss Attributable to iPower Inc.

Net loss attributable to iPower Inc. 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 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 above.

Comprehensive loss Attributable to iPower Inc.

Comprehensive loss attributable to iPower Inc. 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 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

Sources of Liquidity

During the fiscal year ended 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 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. The 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, we believe we will be able to manage through the current challenges by managing payment terms with customers and vendors.

Working Capital

As of June 30, 2026 and 2025, our working capital was $3.4 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 will 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 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 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

For the years ended June 30, 2026 and 2025, net cash used in investing activities was $4,681,625 and $2,042,250, respectively. 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 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

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 audited 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 audited consolidated financial statements.

Revenue recognition

The Company recognizes revenue from service and product sales revenues, 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 sale is recognized. 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. 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. 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.

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). 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.

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 year ended June 30, 2026:

Derivative Liability		Amount
Balance as of June 30, 2025		$	-
Initial fair value upon issuance of convertible notes			2,574,200
Extinguishment of derivative liability upon conversion of convertible notes			(1,285,400	)
Gain on change in fair value of derivative liability			(682,100	)
Balance as of June 30, 2026		$	606,700

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. Valuation allowances are recorded, when necessary, to reduce deferred tax assets to the amount expected to be realized.

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 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.

Recently issued accounting pronouncements

Other 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:

	·	Borrowing base equal to the sum of
		Ø	Up to 90% of eligible credit card receivables
		Ø	Up to 85% of eligible trade accounts receivable
		Ø	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
	·	Undrawn fee of between 0.25% and 0.375% depending on utilization
	·	Maturity Date of November 12, 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:

		2026				2025
Accrued interest		$	113,507			$	244,078
Credit utilization fees			18,636				57,052
Amortization of debt discount			-				125,906
Total		$	132,143			$	427,036

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 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"). The Third Amendment to the Credit Agreement 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.

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 April 8, 2024, the Company entered into an agreement with an unrelated accredited investor (the "Investor") for an on-demand, unsecured and subordinated loan ("On-demand Loan 2"). Pursuant to the agreement, the Investor agreed to loan the Company the amount requested. The On-demand Loan 2 bears interest at the rate of the Secured Overnight Financing Rate, or SOFR, plus 1.5% per annum. The On-demand Loan 2 is due in 30 days upon receipt of the Investor's notice of repayment. 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 Company. The RP Loan 2 bears no interest and is due upon receipt of request of repayment. 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. 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.

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).