Annual Report for Fiscal Year Ending December 31, 2025 (Form 10-K)

Management's Discussion and Analysis of Financial Condition and Results of Operation.

The following Management's Discussion and Analysis should be read in conjunction with our financial statements and the related notes thereto included elsewhere herein. The Management's Discussion and Analysis ("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 form. 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. Unless otherwise indicated or the context otherwise requires, references in this section to "we," "us," "our," and other similar terms refer to Nature's Miracle Holding Inc. and its consolidated subsidiaries and VIE.

Overview

We are a growing agriculture technology company providing products to indoor growers in a CEA (Controlled Environment Agriculture) setting in North America. Our main products are commercial grade LED lights and related equipment designed for indoor growers. For over 10 years, the Company has utilized manufacturing relationships in China to provide quality and cost-efficient products in this space. In the 4^th quarter 2024, we renamed a subsidiary to Hydroman Electric Inc. for the purpose of entering electric vehicle ("EV") market as we aim to distribute EV medium sized trucks to customers in Latin America and also develop indoor growing systems within these EV trucks. In 2024, the Company also started investments in Future Tech Inc., a Bitcoin mining and data center business.

We focus on the greenhouse and cultivation industry and aim at providing integrated greenhouse solutions, including grow lights, dehumidifiers, coco and grow media for vertical farming and multiple growing system. These systems enable year-round cultivation of crops, avoids harsh environments with very cold or hot climate. Many states focused on farming are limited to grow crops are certain months such as Spring to Fall only, and or are too far from production states too have fresh produce year-round. There are cost advantages also as vertical farming systems produces a much higher yield per acre of land. In most cases, water consumption is much lower, up to 90%. Many indoor growers can locate closer to large population centers which can significantly reduce cost of trucking, and lead time whilst reducing carbon emissions as well.

We operate mainly through two subsidiaries in California, Visiontech and Hydroman. Visiontech is known for the brand "eFinity" and provides high-efficiency and high-quality grow lights, grow media, fixtures and other related equipment; Hydroman supplies commercial greenhouse developers and owners with professional lighting technology and equipment. On November 11, 2024, Hydroman, Inc. changed its name to Hydroman Electric Corporation and will focus on business of electric vehicles distribution.

In its first expansion plan, the Company has added additional products to our offering. These include organic and non-organic fertilizers, organic plant growth additives, and dehumidifiers. We have diverse suppliers including from countries such as India, Holland and Turkey. Additional equipment is being considered as well. These are value add components that will help growers increase yield, but more importantly reduce failures and dramatically improve growing environments such. The new products are a natural complement to its our base of LED grow lights.

The Company also seeks to enter the joint ventures in other industry verticals to utilize excess space available for vertical farming.

Trends and Expectations

The following factors have been important to our business, and we expect them to impact our results of operations and financial condition in future periods:

Product and Brand Development

We plan to increase investments in product and brand development. We actively evaluate and pursue acquisitions of product brand names and improvements on existing products. We continue to work with our suppliers in improving lighting products to be both of the highest quality and simultaneously cost effective for the customer. The Company invests in trips abroad to source and partner with manufacturing companies. We expect to develop additional manufacturing relationships and suppliers in Europe in the near future.

The Company is also developing proprietary "all in one" automated and robotic indoor growing systems that are under design and testing phases.

The Company utilizes its vast network in the industry and recent publicity in listing on Nasdaq in acquiring leads for potential partnerships in sourcing, research and development of new product and business acquisitions.

Regulatory Environment

The importation of LED lighting and distribution of such equipment in the United States and Canada does not require strict government disclosures and technical inspections. The Company obtains local business permits to store in our main warehouses, obtain licenses to resell, and follows guidelines on packaging. Certain utility companies in the U.S. have programs that award rebates to heavy usage customers, some of which are in the indoor farming business. These customers are required to install LED lights with a minimum 50,000 hours life. There is also a performance requirement set by DesignLights Consortium, a non-profit energy improvement agency.

Sourcing

The Company has long-term relationships with suppliers in Asia. Our top three suppliers of LED equipment are American Agricultural Innovation Technology Inc., Solislike-Tech Co., Ltd., Dongguan ZSC Lighting Co., Ltd. Each supplier provides us net 30 to net 90-day terms. The Company has also been approached by established lighting companies based in Japan and Germany. On grow feed, fertilizers and nutrients, our potential suppliers are based in Europe and some in Asia. Our grow container product was jointly developed and manufactured by a company based in Shenzhen, China.

On April 24, 2023, we entered into a strategic cooperation agreement with Sinoinnovo Technology (Guangdong) Co., Ltd. ("Sinoinnovo"), a company incorporated under the laws of China, pursuant to which Nature's Miracle will source from Sinoinnovo its grow light systems for distribution in the U.S. and Europe. Both companies will also cooperate jointly to set up advanced manufacturing capabilities in China and the U.S.

On October 28, 2025 we entered into a licensing agreement with Datavault AI (Nasdaq: DVLT), a leader in patented data tokenization and monetization. This agreement calls for Nature's Miracle to license Datavault AI's Carbon Credit Tokenization System.

Asset acquisition of Zak Properties, LLC

On September 18, 2025, the Company entered into a Membership Interest Purchase Agreement (the "Purchase Agreement") with Big Lake Capital LLC ("Big Lake"), pursuant to which, the Company agreed to purchase from Big Lake all of the membership interests of Zak Properties, LLC, an Ohio limited liability company ("Zak Properties"), which in turn owns certain real property located in the State of Ohio, commonly known as 405 Madison Ave. with equity and debt financing. The Company's Chief Executive Officer and Chairman, Tie (James) Li, is the sole member of Zak Properties prior to the sale. As such we recorded the acquisition of the property at cost. Nature's Miracle issued 5,000 Series B and 9,500 Series C Preferred Shares to Big Lake and also signed a new note of $3 million.

We acquired Zak Properties in order to strengthen our balance sheet, generate rental income to provide us a steadier stream of cashflow, and to have the ability to obtain real estate loans to augment our capital needs.

RESULTS OF OPERATIONS

For the Years ended December 31, 2025 and 2024

The following table presents certain combined statement of operations information and presentation of that data as a percentage of change from year to year.

		Year Ended December 31, 2025				Year Ended December 31, 2024				Variance
Revenue		$	1,742,360				9,261,583				(81.2	)%
Cost of revenue		$	2,193,398				12,066,778				(81.8	)%
Gross loss		$	(451,038	)			(2,805,195	)			(83.9	)%
Selling, general and administrative expenses		$	4,883,132				7,134,120				(31.6	)%
Provision for credit losses		$	1,818,151				408,569				345.0	%
Loss from operations		$	(7,152,321	)			(10,347,884	)			(30.9	)%
Total other expenses, net		$	(4,832,733	)			(3,300,356	)			46.4	%
Loss before income taxes		$	(11,985,054	)			(13,648,240	)			(12.2	)%
Income tax expense		$	1,700				5,100				(66.7	)%
Net loss		$	(11,986,754	)			(13,653,340	)			(12.2	)%
Gross loss % of revenues			(25.9	)%			(30.3	)%
Net loss % of revenues			(688.0	)%			(147.4	)%

Revenue

Revenue for the year ended December 31, 2025 decreased by 81.2% to $1,742,360 as compared to $9,261,583, for the year ended December 31, 2024. Revenue declined due to cash constraints that restricted inventory purchases; as we were mainly selling our inventory on hand. The Company is seeking additional financing in fourth quarter to replenish inventory, and management expects the revenue situation to improve once inventory levels are restored.

For the years ended December 31, 2025 and 2024, we had 70 and 128 customers, respectively. Average revenue per customer for the years ended December 31, 2025 and 2024 were $24,891 and $78,000, respectively. Our revenue from top 5 customers for the year ended December 31, 2025 was $981,036 compared to $4,735,824 for the year ended December 31, 2024, representing a decrease of 79.3%. The lower average sale and decreased revenue from top 5 customer are reflective the impact of limited inventory availability.

Costs of Revenue

Costs of revenue for the year ended December 31, 2025 decreased 81.8% to $2,193,398 as compared to $12,066,778 for the year ended December 31, 2024. Cost of revenue decreased primarily due to the decrease in revenue, which was in turn primarily driven by lower sales volume of our products due to limited inventory availability. We also have written off $544,469 of inventory for the year ended December 31, 2025 as the existing inventory was obsolete.

Gross Loss

Gross loss was $451,038 for the year ended December 31, 2025 and $2,805,195 for the year ended December 31, 2024, respectively. The gross loss for the year ended December 31, 2025 decreased to (25.9)% from (30.3)% for the year ended December 31, 2024. The decrease in gross loss was primarily due to less inventory write off in 2025 of approximately $0.5 million compared to approximately $2.3 million in 2024.

Operating expenses

Operating expenses for the year ended December 31, 2025 decreased 11.2% to $6,701,283 as compared to $7,542,689 for the year ended December 31, 2024. The decrease was mainly due to following reasons:

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the year ended December 31, 2025 decreased 31.6% to $4,883,132 as compared to $7,134,120 for the year ended December 31, 2024. The decrease was mainly due to decreased Company's stock compensation expenses of $1,074,396 as a result of completion of vesting periods of certain employees; decrease in professional fees of $399,315, mainly related to lower spending on public relations and SEC filing activities; and a decrease in payroll expenses of $731,511 resulting from a reduced headcount.

Provision for credit losses

Provision for credit losses for the year ended December 31, 2025 increased 345.0% to $1,818,151 as compared to $408,569 for the year ended December 31, 2024. The increase was primarily due to higher estimated credit risk associated with outstanding receivables during the period and the full write-off of the balance due from Iluminar, a related party, as collection was determined to be doubtful.

Other Expenses

Other expenses primarily consist of net interest expense, other finance expense related to our loans and net rental income. Other expenses for the year ended December 31, 2025 was $4,832,733 as compared to other expense of $3,300,356 for the year ended December 31, 2024. The increase was mainly due to the increase in loss on impairment of investment of 1,000,000 due to full write-off of cost method investment of Iluminar, a related party, as recoverability of the investment appears doubtful; the increase of rental expense of $711,665 due to maintenance and repairs; the increase in debt issuance cost of $690,412 due to costs incurred in connection with the issuance of new debt during the period, offset by the decrease in non-cash finance expense of $800,000; the decrease in gain on loan extinguishment of $75,600.

Interest expense for the year ended of December 31, 2025 and 2024 were $3,375,272 and $2,301,600, respectively; increased as a result of multiple convertible notes and high interest loans in 2025. The convertible notes and convertible notes - related party borrowing increased was approximately $1,777,289 and $987,639, respectively. As of December 31, 2025 and 2024, the short-term loan balances were approximately $4,192,646 and $2,668,604, respectively. For the year ended December 31, 2024, 66.0% of the loans were from third-party lenders with interest rates ranging from 8.0% to 12.0%, while the remaining loans were receivables factoring loans with significantly higher interest rates ranging from 66.4% to 100.0%. In contrast, for the year ended December 31, 2025, 36.0% of the loans were from third-party lenders at 8.0% to 22.6%, with the remainder consisting of receivables factoring loans bearing interest rates between 84.0% and 97.0%. The increase in higher-rate factoring loans in the current year and the increase in overall loan balances contributed to the rise in interest expense.

Non-cash finance expense for the year ended December 31, 2025 and 2024 were $200,000 and $1,000,000, respectively. This decrease is primarily due to the expensing of 3,334 shares of common stock issued under a Letter Agreement dated November 15, 2023, in connection with the merger. These shares, valued at approximately $1.0 million, were issued to Tie (James) Li and Zhiyi Zhang for their guarantees related to the repayment of the Newtek Loan, which had a principal amount of $3,700,000. The value of the shares was expensed as non-cash finance expenses upon the completion of the merger in 2024.

Loss on impairment of investment for the year ended of December 31,2025 was $1000,000, due to full write-off of cost method investment in Iluminar and for the year ended December 31,2024 was nil.

Other expense for the year ended of December 31, 2025 was $353,484, primarily consisting of rental expense of approximately $250,000 from Zak Properties in 2025 compared with, other income for the year ended of December 31, 2024 was $9,661, respectively.

Income Tax Expense

Our income tax expense was amounted to $1,700 and $5,100 for the years ended December 31, 2025 and 2024, respectively.

The effective tax rate for the years ended December 31, 2025 and 2024 were 0.0% and 0.0%. The effective tax rate differs from the federal and state statutory tax rate of 21.0% primarily due to the valuation allowance on the deferred tax assets from our operating losses.

Net Loss

Net loss for the year ended December 31, 2025 was $11,986,754 as compared to net loss of $13,653,340 for the year ended December 31, 2024, representing a decrease of $1,666,586. The decrease was primarily due to an decrease of gross loss and a decrease in selling, general and administrative expenses.

LIQUIDITY AND CAPITAL RESOURCES

Sources of Liquidity

In assessing liquidity, we monitor and analyze cash on-hand and operating expenditure commitments. Our liquidity needs are to meet working capital requirements and operating expense obligations. To date, we financed our operations primarily through debt financing from financial institution and related parties. As of December 31, 2025, we had $97,694 in cash which primarily consists of bank deposits, which are unrestricted as to withdrawal and use. Our working capital deficit was $22,299,535 as of December 31, 2025.

Subsequent to December 31, 2025, We obtained approximately $0.3 million in proceeds from convertible notes and promissory notes for liquidity. See Note 20 for further details.

We have experienced recurring losses from operations and negative cash flows from operating activities since 2022. For the years ended December 31, 2025 and 2024, we incurred substantial losses as shown in the financial statement section. Our actual revenue for the years ended December 31, 2025 and 2024 was approximately $1.7 million and $9.3 million, respectively. Such volume and relatively low gross profit margins are not enough to support high administrative costs relating to our going public and expenses as a public company. We have raised equity capital twice in 2024 but utilized most proceeds towards repayment of debt incurred in the going-public merger, higher corporate costs and paying interest and principal on short-term loans. Due to the negative cash flow, our financial position is under pressure, and may potentially continue to have, an ongoing need to raise additional cash from outside sources to fund our expansion plan and related operations. Successful transition to attaining profitable operations is dependent upon achieving a level of revenues adequate to support our cost structure. In connection with our assessment of going concern considerations in accordance with Financial Accounting Standard Board's Accounting Standards Update ("ASU") 2014-15, "Disclosures of Uncertainties about an Entity's Ability to Continue as a Going Concern," management has determined that these conditions raise substantial doubt about our ability to continue as a going concern within one year after the date that these consolidated financial statements are issued. If we are unable to realize our assets within the normal operating cycle of a twelve (12) month period, we may have to consider supplementing our available sources of funds through the following sources:

●

financial support from our related parties and shareholders;

●

other available sources of financing from banks and other financial institutions;

●

equity financing through capital market

We have a $20 million equity financing program ("ELOC") with GHS Investment and this was declared effective by SEC. The Company can draw on this facility for its working capital needs and others.

We have access to investors who are providing convertible note financing for public companies and we have been utilizing the convertible note for part of our financing needs.

Our shareholder also offers support for the Company. Big Lake Capital, LLC, a related party controlled by Tie Li (our Chairman and CEO) entered into a $2 million Convertible Promissory Note on April 11, 2025 with the initial tranche of $600,000. We have borrowed $813,600 and converted $652,800 for the year ended December 31, 2025 under this note, with $1,186,400 of credit still available.

We can make no assurances that required financings will be available for the amounts needed, or on terms commercially acceptable to us, if at all. If one or all of these events does not occur or subsequent capital raises are insufficient to bridge financial and liquidity shortfall, there would likely be a material adverse effect on us and would materially adversely affect our ability to continue as a going concern.

The consolidated financial statements have been prepared assuming that we will continue as a going concern and, accordingly, do not include any adjustments that might result from the outcome of this uncertainty.

Cash Flows

The following tables set forth our selected consolidated cash flow data for the periods indicated:

		For the Years Ended December 31,
		2025				2024
		US$				US$
Net cash used in operating activities			(3,985,013	)			(5,934,771	)
Net cash used in investing activities			(863,359	)			(40,000	)
Net cash provided by financing activities			4,525,659				6,173,048
Effect of exchange rate changes			276				94
Net change in cash			(322,437	)			198,371
Cash and cash equivalents, at the beginning of year			420,131				221,760
Cash and cash equivalents, at the end of year			97,694				420,131

Operating Activities

Net cash used in operating activities was approximately $4.0 million for the year ended December 31, 2025, which was mainly due to our net loss of approximately $12.0 million with non-cash items, including depreciation expense, provision for credit losses, amortization of debt issuance cost, stock compensation expense, non cash finance expense, loss on impairment of investment and amortization of operating right-of-use asset of approximately $5.3 million. Our cash outflow is mainly due to decrease in accounts payable of approximately $0.8 million due to decrease in our purchase from vendor. Our cash outflow is offset by cash inflow of approximately $1.2 million of inventory due to sold more on hand inventory, increase from other payable and accrued liabilities of approximately $1.1 million mainly consists of accrued professional fees and accrued interest on short term loans, long term loans and convertible notes. Additionally, approximately $0.8 million decreased in accounts receivable as our sales decreased.

Net cash used in operating activities was approximately $6.0 million for the year ended December 31, 2024, which was mainly due to our net loss of approximately $13.7 million with non cash expenses of $1.0 million, stock compensation expenses of $1.4 million, inventory impairment loss of approximately $2.3 million, and other non cash item, including depreciation expense, provision for credit losses, amortization of operating right-of-use asset, amortization of debt issuance cost, and loss on loan extinguishment of approximately $1.1 million. Our cash outflow is also increased from increase in accounts receivable of approximately $1.7 million due to increased revenue. Our cash outflow is offset by cash inflow of approximately $2.6 million due to increase from accounts payable as we increased our purchase from vendors and approximately $1.0 million decreased in inventory as we used more on hand inventory.

Investing Activities

For the year ended December 31, 2025, net cash used in investing activities amount to approximately $0.9 million which was primarily for deposit from investment of Future Tech of approximately $0.7 million and deposit from licensing fee of Datavault AI of $0.2 million.

For the year ended December 31, 2024, net cash used in investing activities amount to $40,000 which was primarily for loan to Lakeshore of $40,000 prior to the Merger.

Financing Activities

Net cash provided by financing activities was approximately $4.5 million for the year ended December 31, 2025. The increase in net cash provided was primarily a result of proceeds from capital contribution in advance of approximately $1.4 million, net proceeds from exercise of warrants of approximately $0.9 million, net proceeds from short-term loan from third parties of approximately $2.0 million, net proceeds from convertible notes borrowing of approximately $2.3 million offset by repayments on short-term loan from third parties of approximately $1.2 million, repayments on convertible notes of approximately $0.8 million, repayments on short-term loan from related parties of approximately $0.2 million.

Net cash provided by financing activities was approximately $6.2 million for the year ended December 31, 2024. The increase in net cash provided was primarily a result of net proceeds from short-term loan from third parties of approximately $5.0 million, shares and warrants issued through public offerings of approximately $3.3 million, and convertible notes borrowing of approximately $1.2 million, offset by payments of deferred offering costs of approximately $0.3 million, repayments on long term loans of approximately $0.3 million, repayments on short-term loan from third parties of approximately $2.9 million and repayments on convertible notes of approximately $0.3 million.

Non-cash transactions

Non-cash transactions primarily consisted of asset acquisition via preferred stock issuance of approximately $9.4 million and asset acquisition via convertible note issuance of $3.0 million pursuant to the asset acquisition of Zak Properties, LLC, with preferred stock and a convertible note issued as consideration for the membership interests.

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 Securities Exchange Commission ("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 3 to our 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 consolidated financial statements.

Revenue recognition

We follow Accounting Standards Codification ("ASC") 606 Revenue Recognition and recognizes revenue from 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.

We are a growing agriculture technology company providing CEA hardware products to growers in the controlled environment agriculture industry setting in North America. Majority of our products were grow lights and related products for the indoor growing settings. Starting from first quarter of 2024, we also provide indoor grow containers to our customers.

Our contracts with customers where the amounts charged per product is fixed and determinable, the specific terms of the contracts were agreed on by us including payment terms which are typically 30 to 60 days for existing customers and prepaid for most new customers. In certain contracts involving sales to customers that entered into rebate programs who can get rebates with utility companies with utility companies for using LED lighting, payment term ranges from 60 to 120 days.

Our performance obligation is to deliver the products to customers. For indoor grow container products, we also involved in customization of the products to suit customer's specific needs. The provision of customization and configuration to meet certain technical specification per US market and delivery of product is considered one performance obligation as the services provided are not distinct within the context of the contract whereas the customers can only obtain benefit when the services and products are provided together. At times, we may charge customers shipping and handling for delivery of products, control of goods does not transfer to the customer before shipment, therefore shipping is not a promised service to us and is not considered a separate performance obligation. Any fee charged for shipping would be included in the transaction price for the good.

Transaction prices are mostly fixed. In some contracts, when determining the transaction price, we adjust consideration for the effects of the time value of money if the timing of payments provides us with a significant benefit of financing. We does not assess whether a contract has a significant financing component if the expectation at contract inception is such that the period between payment by the customers and the transfer of the promised goods or services to the licensees will be one year or less. For customers that entered into rebate programs with utility companies, transaction price may depend on level of energy saving the products achieved. We estimated the amount of consideration using either the expected value of the most likely amount depending on which method we expects to better predict the amount of consideration to which it will receive with a constraint applied such that a significant reversal of revenue is not probable.

We transfer the risk of loss or damage upon shipment, therefore, revenue from product sales is recognized at a point in time when control of product transfer to customer and we have no further obligation to provide services related to such product evidenced by customer signing acceptances upon receipt of goods. Return allowances, which reduce product revenue by our best estimate of expected product returns, are estimated using historical experience.

We evaluate 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. We ship the products according to shipping terms on the purchase order or sales order. Once delivery is complete, we then send an invoice to the customer according to the quantity and price of shipment.

We evaluate the indicators of control in accordance with ASU 2016-08: 1) We are the most visible entity to customers and assumes fulfilment risk and risks related to the acceptability of products, including addressing customer inquiries directly and handling of product returns or refunds directly if any. For grow light products, we have our own brand for marketing. For indoor grow containers products, we are also involved in the design and technical specification of the products to meet requirement in the US market. 2) We assume inventory risk either through storing the products in our own warehouses; or for drop shipments directly from vendors, we take the title from vendors through inspection and acceptance and are responsible for product damage during shipment period prior to acceptance of our customers and are also responsible for product return if the customer is not satisfied with the products. 3) We determine the resale price of the products. 4) We are the party that direct the use of the inventory and can prevent the vendor from transferring the product to a customer or to redirect the products to a different customer, after evaluating the above scenario, we consider ourselves the principal of these arrangements and records revenue on a gross basis.

Payments received prior to the delivery of goods to customers or picked up by the customers are recorded as contract liabilities.

We periodically provide incentive offers to our 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 our customers, are treated as a reduction to the transaction price of the related transaction.

Sales discounts are recorded in the period in which the related sale is recognized. Sales return allowances are recorded upon recognizing the related sales.

Accounts receivable, net

Starting from January 1, 2023, the Company adopted ASU No.2016-13 "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments" ("ASC Topic 326"). The Company used a modified retrospective approach, and the adoption does not have an impact on our consolidated financial statements. 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. An allowance for expected credit loss is recorded in the period in which loss is determined to be probable based on lifetime expected losses considering historical, current, and forecasted conditions. Amounts deem uncollectible are written off against the allowance after all collection efforts have ceased.

Inventory

Inventory consists of finished goods ready for sale and is stated at the lower of cost and net realizable value. We value our inventory using the weighted average costing method. We include a part of cost of goods sold any freight incurred to ship the product from our vendors to warehouses. Outbound freight costs related to shipping costs to customers are considered period costs and reflected in cost of revenue. We 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, we make provisions in order to reduce our carrying value to our estimated market value. We also review inventory for slow moving and obsolescence and records allowance for obsolescence.

Long-lived assets impairment

The Company reviews the impairment of its long-lived assets on an annual basis and whenever events or changes in circumstances indicate that the carrying amount of an asset or group of assets may not be fully recoverable. These events or changes in circumstances may include but are not limited to, a significant deterioration of operating results, a change in the regulatory environment, changes in business plans, or adverse changes in anticipated future cash flows. If an impairment indicator is present, the Company evaluates the recoverability by a comparison of the carrying amount of the assets to future undiscounted net cash flows expected to result from the use and eventual disposition of the assets. If the assets are determined to be impaired, the impairment recognized is the excess of the carrying amount over the fair value of the assets. Fair value is generally determined by the discounted cash flow method. The discount rate used in any estimate of discounted cash flows is the rate commensurate with a similar investment of similar risk. As of December 31, 2025 and 2024, we determined there was no impairment as we estimated disposal value of our assets (mainly two buildings) exceed carrying value.

Recently issued accounting pronouncements

In November 2024, the FASB issued ASU 2024-03, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses ("ASU 2024-03"), which requires the disaggregation of certain expenses in the notes of the financials, to provide enhanced transparency into the expense captions presented on the face of the income statement. ASU 2024-03 is effective for annual reporting periods beginning after December 15, 2026 and interim periods beginning after December 15, 2027 and may be applied either prospectively or retrospectively. The Company is currently evaluating the impact that ASU 2024-03 will have on its related disclosures.

Recently adopted accounting pronouncements

In November 2023, the Financial Accounting Standards Board ("FASB") issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires public entities to disclose information about their reportable segments' significant expenses and certain other segment items on an interim and annual basis if they are regularly provided to the chief operating decision maker ("CODM"). 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. The amendments should be applied retrospectively to all prior periods presented. 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 adoption. The Company adopted ASU 2023-07 on January 1, 2024

In December 2023, the FASB issued Accounting Standards Update No. 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures" ("ASU 2023-09"), which modifies the rules on income tax disclosures to require entities to disclose (1) specific categories in the rate reconciliation, (2) the income or loss from continuing operations before income tax expense or benefit (separated between domestic and foreign) and (3) income tax expense or benefit from continuing operations (separated by federal, state and foreign). ASU 2023-09 also requires entities to disclose their income tax payments to international, federal, state and local jurisdictions, among other changes. The guidance is effective for annual periods beginning after December 15, 2024. Early adoption is permitted. ASU 2023-09 should be applied on a prospective basis, but retrospective application is permitted. The Company adopted ASU 2023-09 on January 1, 2025

In November 2024, the FASB issued ASU 2024-04, Debt-Debt with Conversion and Other Options (Subtopic 470-20): Induced Conversion of Convertible Debt Instruments ("ASU 2024-04"), which clarifies the requirements for determining whether certain settlements of convertible debt instruments should be accounted for as an induced conversion. ASU 2024-04 is effective for annual reporting periods beginning after December 15, 2025, and interim reporting periods within those annual reporting periods. Early adoption is permitted for all entities that have adopted the amendments in Update 2020-06, which includes the Company. Adoption can be on a prospective or retrospective basis. The Company adopted ASU 2024-04 effective January 1, 2025 on a prospective basis.

Except as mentioned above, we do not believe other recently issued but not yet effective accounting standards, if currently adopted, would have a material effect on our unaudited condensed consolidated balance sheets, statements of income and comprehensive income and statements of cash flows.