Quarterly Report for Quarter Ending March 31, 2026 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis is intended as a review of significant factors affecting our financial condition and results of operations for the periods indicated. The discussion should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q and the audited financial statements and the other information set forth in the Annual Report on Form 10-K for the fiscal year ended June 30, 2025 filed with the Securities and Exchange Commission (the "SEC") on October 15, 2025. In addition to historical information, the following Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve risks and uncertainties. Our actual results could differ significantly from those anticipated in these forward-looking statements as a result of certain factors discussed herein and any other periodic reports filed and to be filed with the SEC.

Overview

Foxx Development Holdings Inc. ("we," "our", "us", or the "Company") was incorporated on November 13, 2023 under the name "Acri Capital Merger Sub I Inc." On September 26, 2024 (the "Closing"), Acri Capital Acquisition Corporation, a Delaware corporation and our parent company at the time, ("ACAC") consummated a previously announced business combination pursuant to the terms of the business combination agreement, dated February 18, 2024 (as amended on May 31, 2024, collectively, the "Business Combination Agreement"), by and among us, ACAC, Acri Capital Merger Sub II Inc., a Delaware corporation and our wholly-owned subsidiary at the time ("Merger Sub"), and Foxx Development Inc., a Texas corporation incorporated on May 17, 2017 ("Old Foxx"), pursuant to which (i) ACAC merged with and into us (the "Reincorporation Merger"), with us surviving the Reincorporation Merger, and (ii) Old Foxx merged with and into Merger Sub, with Merger Sub surviving as our wholly-owned Delaware subsidiary (the "Acquisition Merger"). The Reincorporation Merger, the Acquisition Merger, and the transactions contemplated under the Business Combination Agreement, are collectively referred to as the "Business Combination".

Upon Closing, we were renamed as "Foxx Development Holdings Inc.", and the Merger Sub was renamed as "Foxx Development Inc." (the "Subsidiary").

The ACAC securities previously traded on the Nasdaq Capital Market ("Nasdaq") were delisted and ceased trading following the Closing. On September 27, 2024, one business day after the Closing, our Common Stock and Warrants became listed on the Nasdaq under trading symbols "FOXX" and "FOXXW," respectively.

Together with our Subsidiary, we are a technology innovation firm specializing in the communications sector. Since our establishment in 2017, we have expanded our presence to include various locations throughout the United States, such as San Francisco, CA, Dallas, TX, Atlanta, GA, Los Angeles, CA, Miami, FL, and New York, NY. This expansion enables us to provide sales, retail, distribution, and after-sales support services while simultaneously driving innovation through active research and development efforts aimed at pioneering new customization standards and services.

Our business model involves providing comprehensive hardware and software specifications to original design manufacturers. Once the products are developed, we engage with third-party agencies to secure necessary testing and certifications, including Equipment Authorizations from the FCC and certifications from the Global Mobile Suppliers Association. We currently offer a range of Foxx-branded products, including tablets, smartphones, wearables, and expects to launch other high-quality communication terminals. Our products are generally priced competitively after considering various factors such as product costs, research and development investments, regulatory compliance, testing expenses, and shipping costs. Our customers are primarily distributors who sell Foxx-branded products in the U.S. public channels and to major carriers in the United States such as T-Mobile, AT&T, and Verizon. Our customers also included individual e-commerce customers from TikTok Shop, which we began our e-commerce operations in March 2024.

We have generated most of our revenue from the sales of tablets and smartphones. We expect to enter the U.S. IoT markets and potentially the private label Mobile Virtual Network Operator ("MVNO") market, with the aim of growing into a key player both domestically and globally. We have been preparing to enter these markets by adding additional features and providing related services that enable Foxx-branded devices to have IoT and MVNO capabilities.

We manage inventory and meet market demand through our build-to-order business model. After customers place purchase orders in bulk with us, we place purchase orders with suppliers to manufacture the products that meet customers' products specifications and budget requirements. Prior to 2023, we relied on limited suppliers for the manufacturing of mobile phone and tablet products and on limited customers for the distribution of these products. We selectively concentrated our resources on our tablet and mobile phone products because such products held the strongest market potential and revenue generation capability at the time when remote work and online classes became more prevalent.

Beginning in 2023, we adjusted our business strategy to avoid reliance on limited suppliers and customers and to diversify suppliers and customers to mitigate the concentration and reliance risk. We have added new product models across each product line to target a broader range of customers. As of the date hereof, we have reached out to a total of sixteen wholesale customers to expand our operations in the market and expect to secure purchase orders from these new customers. At the same time, to meet the various product demands of current and prospective customers, we have connected with suppliers who can provide manufacturing support when we secure purchase orders from our customers. In addition, we plan to further expand our product range and to launch an IoT platform to manage all end products sold and began setting up a service team for our business to business (B2B) model in the artificial IoT department. Through the efforts to expand product range and reaching a broader customer base, we will be able to move away from relying on limited customers and suppliers. As we dedicated our resources to expansion, we experienced a significant decrease in the sales of tablet and mobile phone products during the year ended June 30, 2024 as compared to the same period in 2023: (i) new customers began orders in much smaller quantities as compared to our previous customer in order to build up a trustworthy relationship; (ii) similarly and relevantly, we placed order with new suppliers in much smaller quantities to build up relationship and ensure the quality of the products; and (iii) new product models on both tablet and mobile phones order by new customers required approximately 6-9 months from development to mass production.

In addition, on February 8, 2024, the U.S. Federal Communication Commission stopped accepting new enrollment in the Affordable Connectivity Program (ACP) and announced that the ACP will stop accepting new applications and enrollments on February 7, 2024, and will stop funding for enrolled customers starting on April 30, 2024. Temporarily impacted by such a change in ACP, most of our new customers are cutting down their sales teams in anticipation of the reduced customer base, which affects the demand for our products across all channels during the year ended June 30, 2024; and on the other hand, our competitors have stockpiled their products during the year ended June 30, 2024, due to severely declining sales and they have started lower their sale price on their products which affected the demand of our products. However, we may continue to target end-users who are eligible for the Lifeline Program, which is administered by the Universal Service Administrative Company (USAC) and receives funding from the Universal Service Fund, a government program that receives annual contributions from telecommunications companies or their customers. At the same time, because we have initiated our strategic shifts to diversify our product offerings, we expect to target customers who are interested in other mobile devices, tablets, and IoT products. In addition, we began launching our products through TikTok Shop in March 2024 and we expect to grow our sales through this e-commerce channel.

During the nine months ended March 31, 2026, we revised our business strategy and decided to exit the AIoT business. Accordingly, in December 2025, we completed the sales of our AIoT products and disposed of related AIoT equipment. In addition, in January 2026, we began engaging in dropship arrangement to reduce additional freight cost and usage of our warehouse spaces. This change of business strategy helped us to reduce our freight costs and promoted better gross margin with our wholesales business

For the nine months ended March 31, 2026, our sales decreased compared to the nine months ended March 31, 2025. The inflation rate was steadily increasing throughout 2024 and 2025, the consumers' spending power was weakened, and the mobile phone replacement rate was lowered. Previously, consumers tended to replace their phones every more often between 1 to 2 years, whereas now many keep the same device for over 2 years. In addition, lower order volumes, resulting from our intention of increasing selling prices in response to higher costs driven by rising chip prices, contributed to the decline in sales. Our sales strategy did not execute smoothly as our customers did not respond well with the increase of selling prices which lead to the revenue decreased.

The Business Combination

Incorporated as a Delaware corporation under the name "Acri Capital Merger Sub I Inc." on November 13, 2023, we entered into the Business Combination Agreement on February 18, 2024, as amended on May 31, 2024, by and among us, ACAC, Merger Sub, and Old Foxx.

Upon the Closing of the Business Combination on September 26, 2024, ACAC merged with and into us, with us surviving the Reincorporation Merger, and (ii) Old Foxx merged with and into Merger Sub, with Merger Sub surviving as our wholly owned Delaware subsidiary after the Acquisition Merger.

These transactions were completed in connection with the consummation of the Business Combination: (i) all 2,270,096 ACAC outstanding shares were converted on a one-for-one basis into our Common Stock; (ii) all issued and outstanding shares of Old Foxx Common Stock were cancelled in exchange for the rights for Old Foxx Shareholders, including the holders of Old Foxx's convertible promissory notes upon the conversion of the convertible promissory notes and their interests into Old Foxx Common Stock immediately prior to Closing, to receive such stockholder's pro rata share of 5,000,000 shares of our Common Stock were cancelled in exchange for the right by the Old Foxx Shareholders to receive a pro rata share of 3,303,333 shares of our Common Stock at the exchange ratio of 3.3033; (iii) 4,200,000 shares ("Earnout Shares") of our Common Stock were reserved for issuance to Old Foxx's stockholders subject to the vesting schedule based on our financial performance for the fiscal years ended June 30, 2025 and 2024. The Earnout Shares were forfeited since we did not meet the financial performance threshold; (iv) all issued and outstanding 12,156,417 ACAC warrants were converted on a one-for-one basis into our warrants.

Public Listing

The ACAC securities previously traded on Nasdaq were delisted without any action needed to be taken on the part of the holders of such securities and are no longer traded on Nasdaq following the Closing. On September 27, 2024, one business day after the Closing, our Common Stock and Warrants became listed on the Nasdaq Capital Market ("Nasdaq") under trading symbols "FOXX" and "FOXXW," respectively.

Accounting Treatment

While the legal acquirer in the Business Combination was ACAC, for financial accounting and reporting purposes under U.S. GAAP, Old Foxx was the accounting acquirer, and the Business Combination was accounted for as a "reverse recapitalization." A reverse recapitalization (i.e., a capital transaction involving the issuance of stock by ACAC for the stock of Old Foxx) does not result in a new basis of accounting, and the unaudited condensed consolidated financial statements of the combined company represent the continuation of the unaudited condensed consolidated financial statements of Old Foxx in many respects. Accordingly, the assets, liabilities and results of operations of Old Foxx became the historical financial statements of the combined company, and ACAC's assets, liabilities, and results of operations were consolidated with Old Foxx beginning from the Closing on September 26, 2024. Operations prior to the Business Combination are presented as those of Old Foxx. The net assets of ACAC are recognized at historical cost (which is expected to be consistent with carrying value), with no goodwill or other intangible assets recorded upon execution of the Business Combination.

Transaction Financing

In consideration of market conditions, pursuant to the Business Combination Agreement, the parties agreed to use commercially best efforts to secure financing to pay transaction expense and working capital of Foxx, including without limitation, a PIPE financing, private financing, redemption waiver, convertible debt, forward purchase agreement, backstop, or equity line of credit (collectively, the "Transaction Financing").

On June 21, 2023, Old Foxx entered into a securities purchase agreement (the "Convertible Note Agreement 1") with New Bay Capital Limited, a Hong Kong registered company ("New Bay"), and issued a promissory note ("Note 1") to New Bay in the principal amount of $2 million with an interest rate of 7% per annum, convertible into shares of Old Foxx common stock at $30.00 per share upon the listing of Old Foxx common stock through an initial public offering. On December 21, 2023, Old Foxx issued into another securities purchase agreement (the "Convertible Note Agreement 2") with New Bay with the same terms and conditions as the Convertible Note Agreement and issued another promissory note ("Note 2") to New Bay in the principal amount of $2 million.

In connection with the Business Combination Agreement and all the transaction contemplated therein (the "Business Combination"), in the spring of 2024, Old Foxx and ACAC reached out to New Bay to seek its interest in participating in further financing in connection with the Business Combination.

After negotiations with New Bay, On March 15, 2024, Old Foxx and New Bay agreed to an amendment to amend both Convertible Note Agreement 1 and Convertible Note Agreement 2, and to amend Note 1 and Note 2, by removing the lock-up provisions as provided therein and allowing the unpaid principal and accrued interest on Note 1 and Note 2 to convert to Old Foxx common stock immediately prior to the closing of the Business Combination. New Bay also subscribed for a new promissory note ("Note 3") in the principal amount of $2 million under the same terms and conditions as amended Note 1 and Note 2 (collectively, the "New Bay Notes").

On March 15, 2024, Old Foxx and New Bay amended the terms of the Note 1 and Note 2 accordingly, and New Bay subscribed for a new promissory note ("Note 3") in the principal amount of $2 million under the same terms and conditions as amended Note 1 and Note 2 (collectively "New Bay Notes").

On February 20, 2024, New Bay introduced Old Foxx to BR Technologies PTE, Ltd. ("BR Technologies"), a Singapore-based company. On May 30, 2024, Old Foxx, BR Technologies and Grazyna Plawinski Limited, a Singapore-based company ("Grazyna"), entered into a securities purchase agreement for issuance of promissory notes in the amount of up to $9.0 million with an interest rate of 7% per annum under the same terms and conditions as provided in the New Bay Notes. A promissory note was issued by Old Foxx to BR (the "Note 4") in the principal amount of $6 million and promissory notes issued by Old Foxx to Grazyna (the "Note 5") in the total principal amount of $3 million on September 12, 2024.

Immediately prior to the Closing, all the accrued and unpaid principal and interests on the New Bay Notes, Note 4, and Note 5 were converted into: (x) 212,050 shares of Old Foxx common stock for the New Bay Notes, (y) 200,882 shares of Old Foxx common stock for Note 4, and (z) 100,690 share of Old Foxx common stock for Note 5, at a price of $30.00 per share. At the Closing, all of the converted shares of Old Foxx common stock were cancelled in exchange for the holders' pro rata share of the Closing Payment Shares using the exchange ratio of 3.3033, resulting in (x) 700,473 shares of our Common Stock issued to New Bay, (y) 663,581 shares of our Common Stock issued to BR Technologies, and (z) 332,614 shares of our Common Stock issued to Grazyna.

Nasdaq Listing Update

On November 5, 2025, we received a deficiency letter from the Nasdaq Listing Qualifications Department (the "Staff") of the Nasdaq Stock Market LLC ("Nasdaq") notifying us that, for a period of 30 consecutive business days, our market value of listed securities ("MVLS") closed below the $35,000,000 MVLS threshold required for continued listing on the Nasdaq Capital Market under Nasdaq Listing Rule 5550(b)(2) (the "MVLS Rule"). In accordance with Nasdaq Listing Rule 5810(c)(3)(C), we have until May 4, 2026 to regain compliance with the MVLS requirement (the "Initial Compliance Period"). For the last 15 consecutive business days, from March 31 through April 21, 2026, our MVLS has been $35,000,000 or greater. Accordingly, we have regained compliance with the Rule, and this matter is now closed.

Key Factors that Affect Operating Results

We believe the key factors affecting our financial condition and results of operations include the following:

Retention of Key Management Team Members

One of the key differentiating factors of ours is the rich blended nature of our management team. Our management team comprises executives with extensive experience in electronics industry with IoT services related experience. The wide array of industry experience captured by our management team allows us to deliver advanced technology and superior products to our customers. Losing any member of our key executive team could significantly impact on the quality of services and products that we currently offer. Such departures may prompt customers to explore alternative products or IoT cloud platforms offered by different vendors or service providers.

Investment in technology and talent

We invest significant resources in outsourcing partnerships and dedicate efforts to research and develop new products, solutions, agent platforms, and related services. This commitment is essential to uphold our competitiveness in the industry, especially in the realm of IoT services. Advancing technology and enhancing capabilities are pivotal for enterprise growth, necessitating continual progress in electronic product technologies, novel services, and expanded capabilities.

To maintain and expand our customer base, we must sustain a culture of innovation that aligns with the industry's evolution. This entails continuously introducing cutting-edge technologies to the market. Our current focus in research and development revolves around bolstering comprehensive communication, storage, and energy solutions, as well as advancing 5G technology. This includes areas such as baseband development, Radio Frequency (RF) layout optimization, Session Initiation Protocol (SIP) integration, and rigorous system testing.

In addition, in January 2026, we entered into a R&D agreement with a third party, pursuant to which the third party will provide the Company technical development services for the operating system of the Company's mobile phone products, including developing a customized FOXX OS cross-platform inheritance framework to enable compatibility and adaptation across multiple platforms and operating systems; establishing a unified compatibility and integration framework for system modules and applications to ensure overall system stability and interoperability; optimizing core applications for multi-platform adaptation to enhance system performance, smooth operation, and user experience; developing proprietary applications, including a mobile manager, home screen, and browser, and complete their integration into the operating system; integrating and validating advertising and paid-service-related business modules to ensure proper functionality, regulatory compliance, and security; and conducting system and UX/UI design and implementation to enhance visual design and user interaction, ensuring a consistent overall style.

Our ability to expand our products and services and diversify customer base

Currently, our main revenue stream originates from the sale of tablets and mobile phones. As brand recognition and acceptance grow, we anticipate a surge in user adoption of our wireless services and intelligent products. Our capacity to broaden our products portfolio, offer new services and attract a more diversified customer base could significantly influence our future operating results.

Results of Operations

Comparison for the three months ended March 31, 2026 and 2025

		For the Three Months Ended March 31,
		2026				2025				Change ($)				Change (%)
		(Unaudited)				(Unaudited)
Revenues, net		$	8,666,261			$	11,392,078			$	(2,725,817	)			(23.9	)%
Cost of goods sold			10,116,838				10,728,765				(611,927	)			(5.7	)%
Gross (loss) profit			(1,450,577	)			663,313				(2,113,890	)			(318.7	)%
Operating expenses
Selling expense			964,440				1,551,369				(586,929	)			(37.8	)%
General, and administrative expense			2,928,172				1,421,299				1,506,873				106.0	%
Research and development - related party			-				22,792				(22,792	)			(100.0	)%
Research and development			1,085,588				826,532				259,056				31.3	%
Provision of credit losses			1,681,606				401,988				1,279,618				318.3	%
Impairments of right-of-use assets			25,855,427				-				25,855,427				100.0	%
Loss from operations			(33,965,810	)			(3,560,667	)			(30,405,143	)			853.9	%
Other expense, net			(2,304,183	)			(523,844	)			(1,780,339	)			339.9	%
Provision for income tax			-				-				-				-	%
Net loss			(36,269,993	)			(4,084,511	)			(32,185,482	)			788.0	%
Foreign currency translation adjustment			(3,318	)			(412	)			(2,906	)			705.3	%
Comprehensive loss		$	(36,273,311	)		$	(4,084,923	)		$	(32,188,388	)			788.0	%

Revenues

Our revenue is primarily derived from sales of electronic products. The total revenues decreased by approximately $2.7 million, or 23.9%, to approximately $8.7 million for the three months ended March 31, 2026 as compared to $11.4 million for the three months ended March 31, 2025. The decrease of the total revenue was mainly attributable to the decrease in mobile phone products and wearable and other products revenues.

Our revenues from our revenue categories are summarized as follows:

		For the Three Months Ended
		March 31, 2026				March 31, 2025
		(Unaudited)				(Unaudited)
Tablet products		$	83,301			$	219,545
Mobile phone products			8,002,139				8,868,686
Wearable products and others			254,039				1,557,962
Subtotal product revenues			8,339,479				10,646,193
App service commission revenue			324,342				690,817
Other services			2,440				55,068
Subtotal service revenues			326,782				745,885
Total revenues, net		$	8,666,261			$	11,392,078

Tablet product sales were insignificant in our operations for the three months ended March 31, 2026. Revenue from the sales of tablets decreased by approximately $0.1 million, or 62.1%, to approximately $0.1 million for the three months ended March 31, 2026 from $0.2 million for the same period in 2025. Revenue from sales of phones decreased by approximately $0.9 million, or 9.8%, to approximately $8.0 million for the three months ended March 31, 2026 from $8.9 million for the same period in 2025. This decrease was primarily attributed to lower order volumes resulting from our intention of increasing selling prices in response to higher costs driven by rising chip prices. Our sales strategy did not execute smoothly as our customers did not respond well with the increase of selling prices which lead to the phones revenue decreased. Revenue from sales of wearable products and others decreased by approximately $1.3 million, or 83.7%, to approximately $0.3 million for the three months ended March 31, 2026 from $1.6 million for the three months ended March 31, 2025, as the consumers' spending power was weakened and the demands of the wearable products were lowered during the three months ended March 31, 2026 period. Revenue from App service commission decreased by approximately $0.4 million, or 53.0%, to approximately $0.3 million for the three months ended March 31, 2026 from approximately $0.7 million for the three months ended March 31, 2025, as the sales of phones decreased and the consumers' spending power was weakened. Revenue from other services was income generated by our other logistic and warehouse management and MVNO services and it was insignificant in our operations for the three months ended March 31, 2026.

Cost of Goods Sold

Our cost of goods sold mainly consists of cost of merchandise and freight. Total cost of goods sold decreased by approximately $0.6 million, or 5.7%, to approximately $10.1 million for the three months ended March 31, 2026 as compared to approximately $10.7 million for the three months ended March 31, 2025. The decrease in cost of goods sold is a direct result of a decrease in our revenue. The decrease is also attributable to the decrease in cost of products as we negotiated with our vendor to cover shipping and tariff costs beginning in July 2025.

Our cost of goods sold from their revenue categories are summarized as follows:

		For the Three Months Ended
		March 31, 2026				March 31, 2025
		(Unaudited)				(Unaudited)
Tablet products		$	154,074			$	175,135
Mobile phone products			9,405,459				9,117,657
Wearable products and others			557,255				1,415,375
Other services cost			50				20,598
Total cost of goods sold		$	10,116,838			$	10,728,765

Our cost of goods sold for tablets decreased by approximately $21,000, or 12.0%, to approximately $154,000 for the three months ended March 31, 2026 from approximately $175,000 for the same period in 2025. Cost of goods sold for mobile phone products increased by approximately $0.3 million, or 3.2%, to approximately $9.4 million for the three months ended March 31, 2026 from approximately $9.1 million for the same period in 2025, primarily due to inventory impairment related to slow-moving inventory of approximately $2.6 million, and the increased chip prices. Cost of goods sold for wearable products and others decreased by approximately $0.8 million, or 60.6%, to approximately $0.6 million for the three months ended March 31, 2026 from $1.4 million for the same period in 2025, which is consistent with the decrease of sales and is the direct result of our negotiation with our vendor to cover shipping and tariff costs beginning in July 2025. Cost of other services was insignificant in our operations for the three months ended March 31, 2026 and 2025.

Gross (Loss) Profit

Our gross (loss) profit decreased by approximately $2.1 million, or 318.7%, to approximately $1.5 million gross loss for the three months ended March 31, 2026, from $0.7 gross profit for the three months ended March 31, 2025.

Our gross (loss) profit from their major revenue categories is summarized as follows:

		For the Three Months Ended March 31,
		2026				2025				Change				Change (%)
		(Unaudited)				(Unaudited)
Tablet products
Gross (loss) profit		$	(70,773	)		$	44,410			$	(115,183	)			(259.4	)%
Gross (loss) profit percentage			(85.0	)%			20.2	%			(105.2	)%
Mobile phone products
Gross loss		$	(1,403,320	)		$	(248,971	)		$	(1,154,349	)			463.6	%
Gross loss percentage			(17.5	)%			(2.8	)%			(14.7	)%
Wearable products and others
Gross (loss) profit		$	(303,216	)		$	142,587			$	(445,803	)			(312.7	)%
Gross (loss) profit percentage			(119.4	)%			9.2	%			(128.5	)%
App service commission revenue
Gross profit		$	324,342			$	690,817			$	(366,475	)			(53.0	)%
Gross profit percentage			100.0	%			100.0	%			0.0	%
Other services
Gross profit		$	2,390			$	34,470			$	(32,080	)			(93.1	)%
Gross profit percentage			98.0	%			62.6	%			35.4	%
Total
Gross (loss) profit		$	(1,450,577	)		$	663,313			$	(2,113,890	)			(318.7	)%
Gross (loss) profit percentage			(16.7	)%			5.8	%			(22.6	)%

For the three months ended March 31, 2026 and 2025, our overall gross (loss) profit percentage was (16.7) % and 5.8%, respectively. The decrease in gross (loss) profit percentage of 22.6% was primarily due to the decrease in gross profit percentage for all products.

Gross (loss) profit percentage of tablets decreased from 20.2% for the three months ended March 31, 2025 to (85.0) % for the same period in 2026. This was primarily due to the decrease of sales of those with higher unit selling prices and lower unit purchase prices, as well as inventory impairment related to slow-moving inventory of approximately $99,000.

Gross loss percentage for mobile phones increased from 2.8% for the three months ended March 31, 2025 to 17.5% for the same period in 2026. This was primarily due to inventory impairment related to slow-moving inventory and increased chip prices without a corresponding increase in selling prices.

Gross (loss) profit percentage for wearable products and others decreased from 9.2% for the three months ended March 31, 2025 to (119.4) % for the same period in 2026. This was primarily due to inventory impairment related to slow-moving inventory of approximately $0.4 million.

For the three months ended March 31, 2026 and 2025, our gross profit percentage of App service commission was 100.0%. This high margin was primarily attributable to the nature of App service commission revenue, which was commission based revenue that was earned at a point in time when the revenue is generated from the App, that is when clicks and/or impressions, activation of Apps, and installation of additional Apps occur at a point in time when the end users of the mobile devices interact with those Apps. We earned the App revenue share (service commission) from our partners without incurring any direct cost, as the pre-installation expenses were included in the research and development expenses prior to installation, and any labor costs with minimal time spent were immaterial to be allocated to cost of revenue.

Gross profit percentage for other services increased from 62.6% for the three months ended March 31, 2025 to 98.0% for the same period in 2026. Gross profit for other services was insignificant in our operations for the three months ended March 31, 2026 and 2025.

Operating Expenses

Total operating expenses increased by approximately $1.2 million, or 28.3%, to approximately $5.4 million for the three months ended March 31, 2026, from approximately $4.2 million for the three months ended March 31, 2025.

Our operating expenses are summarized as follows:

The increase in operating expenses was mainly attributed to the following:

		For the Three Months ended March 31,
		2026				2025				Change ($)				Change (%)
		(Unaudited)				(Unaudited)
Operating expenses
Selling expenses		$	964,440			$	1,551,369			$	(586,929	)			(37.8	)%
General and administrative expense			2,928,172				1,421,299				1,506,873				106.0	%
Research and development - related party			-				22,792				(22,792	)			(100.0	)%
Research and development			1,085,588				826,532				259,056				31.3	%
Provision of credit losses			1,681,606				401,988				1,279,618				318.3	%
Impairments of right-of-use assets			25,855,427				-				25,855,427				100.0	%
Total operating expense		$	32,515,233			$	4,223,980			$	28,291,253				669.8	%

Selling Expenses

Selling expenses decreased approximately $0.6 million, or 37.8%, to approximately $0.1 million for the three months ended March 31, 2026, from approximately $1.6 million for the three months ended March 31, 2025. The decreased selling expenses was mainly attributable to approximately $0.3 million decrease in payroll and payroll related expenses, approximately $0.2 million decrease in marketing consulting fees, and approximately $0.1 million decrease in testing and certification expenses during the three months ended December 31, 2025, as we reduced salespersons and consultants and the test for products to cut expenses and streamline sales department.

General and Administrative Expenses

General and administrative expenses increased approximately $1.5 million, or 106.0%, to approximately $2.9 million for the three months ended March 31, 2026 from approximately $1.4 million for the three months ended March 31, 2025. The increased general and administrative expense were mainly attributable to the approximately $0.2 million increase in salary and wages as a result of allocating certain personnel compensation from selling expenses to general and administrative expenses, reflecting a change in the personnel's primary responsibilities, and approximately $1.3 million increase in rent due to the new warehouse leases that commenced in July 2025 and January 2026.

Research and Development - related party

Research and development ("R&D") expenses from a related party decreased by approximately $23,000, or 100.0%, where the decrease was primarily due to an R&D project which commenced in 2024 and was completed in June 2025. During the three months ended March 31, 2025, a related party completed additional 20% of the remaining 5G development project pursuant to an R&D agreement between us and the related party, and we recognized a R&D expense approximately of $23,000 accordingly based on the progression of the R&D project. We did not have this expense for the same period in 2026.

Research and Development

R&D expenses increased by approximately $0.3 million, or 31.3%, from $0.8 million for the three months ended March 31, 2025 to $1.1 million for the same period in 2026. The increase was primarily due to the R&D agreement entered into in January 2026 with a third party, under which the third party will provide technical development services for our operating system across three phases. During the three months ended March 31, 2026, the Company recognized approximately $0.9 million of R&D expenses under this agreement, reflecting progress in the initial development phase.

Provision of credit losses

Provision of credit losses increased by approximately $1.3 million, or 318.3%, from $0.4 million for the three months ended March 31, 2025 to approximately $1.7 million for the same period in 2026. The increase was primarily due to continued aging of receivables, as well as our assessment of historical collection experience and probability of recovery from our customers and customer groups.

Impairments of right-of-use assets

Impairments of right-of-use assets increased by approximately $25.9 million, or 100.0%, from $0 for the three months ended March 31, 2025 to approximately $25.2 million for the same period in 2026. The increase was primarily attributable to impairment charges recognized following the change in our business strategy because we began engaging in dropship arrangement in our wholesale business and we are no longer required to use our warehouse space. As a result, our management decided to sublease our warehouse with lesser value as compared to our current lease payments, which indicated that the carrying amount of the right-of-use assets was not recoverable and exceeded their estimated fair value by approximately $25.9 million.

Other expense, net

Our other expense, net is summarized as follows:

		For the Three Months ended March 31,
		2026				2025				Change				Change (%)
		(Unaudited)				(Unaudited)
Other expense
Interest expense		$	(2,304,183	)		$	(1,553,993	)		$	(750,190	)			48.3	%
Other expense, net			-				(2,118	)			2,118				(100.0	)%
Change in fair value of earnout liabilities			-				1,032,267				(1,032,267	)			(100.0	)%
Total other expense, net		$	(2,304,183	)		$	(523,844	)		$	(1,780,339	)			339.9	%

Total other expense, net increased by approximately $1.8 million, or 339.9%, to approximately $2.3 million of other expense, net for the three months ended March 31, 2026, from approximately $0.5 million for the three months ended March 31, 2025. The increase was primarily due to the increase of approximately $0.8 million interest expenses incurred related to the financing offered by our vendors based upon the timing of our payment to their accounts payable - supplier financing and the decrease of approximately $1.0 million change in fair value of earnout liabilities as we no longer had earnout liabilities after June 30, 2025.

Provision for income taxes

There was no provision for income taxes in each of the three months ended March 31, 2026 and 2025 as we had made full allowance of our deferred tax assets on net operating losses.

Net loss

Net loss increased by approximately $32.2 million, or 788.0%, to approximately $36.3 million for the three months ended March 31, 2026, from approximately $4.1 million for the three months ended March 31, 2025. Such change was mainly due to the reasons discussed above.

Foreign Currency Translation Adjustment

Changes in foreign currency translation adjustment of approximately $3,000 are mainly due to the fluctuation of foreign exchange rates between SGD (the functional currency of one of our subsidiaries) and the USD dollar (reporting currency) for the three months ended March 31, 2026.

Comparison for the nine months ended March 31, 2026 and 2025

		For the Nine Months Ended March 31,
		2026				2025				Change ($)				Change (%)
		(Unaudited)				(Unaudited)
Revenues, net		$	45,606,134			$	51,984,361			$	(6,378,227	)			(12.3	)%
Cost of goods sold			42,095,364				48,732,206				(6,636,842	)			(13.6	)%
Gross profit			3,510,770				3,252,155				258,615				8.0	%
Operating expenses
Selling expense			3,008,663				4,393,150				(1,384,487	)			(31.5	)%
General, and administrative expense			8,376,858				4,361,716				4,015,142				92.1	%
Research and development - related party			-				91,168				(91,168	)			(100.0	)%
Research and development			1,585,228				1,550,833				34,395				2.2	%
Provision of credit losses			1,765,169				464,988				1,300,181				279.6	%
Impairments of right-of-use assets			25,855,427				-				25,855,427				100.0	%
Loss from operations			(37,080,575	)			(7,609,700	)			(29,470,875	)			387.3	%
Other (expense) income, net			(6,340,774	)			2,682,546				(9,023,320	)			(336.4	)%
Provision for income tax			-				-				-				-%
Net loss		$	(43,421,349	)		$	(4,927,154	)		$	(38,494,195	)			781.3	%
Foreign currency translation adjustment			(12,109	)			(412	)			(11,697	)			2,839.1	%
Comprehensive loss			(43,433,458	)			(4,927,566	)			(38,505,892	)			781.4	%

Revenues

Our revenue is primarily derived from sales of electronic products. The total revenues decreased by approximately $6.4 million, or 12.3%, to approximately $45.6 million for the nine months ended March 31, 2026 as compared to $52.0 million for the nine months ended March 31, 2025. The decrease of the total revenue was mainly attributable to the decrease in mobile phone products revenues, which accounted for 90% of our sales.

Our revenues from our revenue categories are summarized as follows:

		For the Nine Months Ended
		March 31, 2026				March 31, 2025
		(Unaudited)				(Unaudited)
Tablet products		$	412,491			$	392,660
Mobile phone products			40,875,567				46,571,691
Wearable products and others			2,999,116				3,358,138
Subtotal product revenues			44,287,174				50,322,489
App service commission revenue			1,314,402				1,606,804
Other services			4,558				55,068
Subtotal service revenues			1,318,960				1,661,872
Total revenues, net		$	45,606,134			$	51,984,361

Tablet product sales were insignificant in our operations for the nine months ended March 31, 2026. Revenue from the sales of tablets increased by approximately $19,000, or 5.1%, to approximately $412,000 for the nine months ended March 31, 2026 from $393,000 for the same period in 2025. Revenue from sales of phones decreased by approximately $5.7 million, or 12.2%, to approximately $40.9 million for the nine months ended March 31, 2026 from $46.6 million for the same period in 2025 as the consumers' spending power was weakened and the mobile phone replacement rate was lowered. Previously, consumers tended to replace their phones every more often between 1 to 2 years, whereas now many keep the same device for over 2 years. This decrease was also attributed to lower order volumes, resulting from our intention of increasing selling prices in response to higher costs driven by rising chip prices. Revenue from sales of wearable products and others decreased by approximately $0.4 million, or 10.7%, to approximately $3.0 million for the nine months ended March 31, 2026 from $3.4 million for the nine months ended March 31, 2025, as the consumers' spending power was weakened and the demands of the wearable products were lowered during the nine months ended March 31, 2026 period. Revenue from App service commission decreased by approximately $0.3 million, or 18.2%, to approximately $1.3 million for the nine months ended March 31, 2026 from $1.6 million for the nine months ended March 31, 2025, as the sales of phones decreased the consumers' spending power was weakened. Revenue from other services was income generated by our other logistic and warehouse management and MVNO services and it was insignificant in our operations for the nine months ended March 31, 2026.

Cost of Goods Sold

Our cost of goods sold mainly consists of cost of merchandise and freight. Total cost of goods sold decreased by approximately $6.6 million, or 13.6%, to approximately $42.1 million for the nine months ended March 31, 2026 as compared to $48.7 million for the nine months ended March 31, 2025. The decrease in cost of goods sold is a direct result of a decrease in our revenue, consistent with the decrease in mobile phone production costs, which accounted for 91% of our cost of goods sold.

Our cost of goods sold from their revenue categories are summarized as follows:

		For the Nine Months Ended
		March 31, 2026				March 31, 2025
		(Unaudited)				(Unaudited)
Tablet products		$	445,400			$	312,704
Mobile phone products			38,387,419				45,450,285
Wearable products and others			3,262,005				2,948,619
Other services cost			540				20,598
Total cost of goods sold		$	42,095,364			$	48,732,206

Our cost of goods sold for tablets increased by approximately $0.1 million, or 42.4%, to approximately $0.4 million for the nine months ended March 31, 2026 from approximately $0.3 million for the same period in 2025. Cost of goods sold for mobile phone products decreased by approximately $7.1 million, or 15.5%, to approximately $38.4 million for the nine months ended March 31, 2026 from approximately $45.5 million for the same period in 2025, which is consistent with the direct result of an decrease in our revenue. The decrease is also attributable to the decrease in unit cost as we negotiated with our vendor to cover shipping and tariff costs beginning in July 2025 offset by the increase of inventory impairment related to slow-moving inventory of approximately $3.7 million. Cost of goods sold for wearable products and others increased by approximately $0.4 million, or 10.6%, to approximately $3.3 million for the nine months ended March 31, 2026 from $2.9 million for the same period in 2025, which is primarily due to inventory impairment related to slow-moving inventory of approximately $0.8 million. Cost of other services was insignificant in our operations for the nine months ended March 31, 2026 and 2025.

Gross Profit

Our gross profit increased by approximately $0.2 million, or 8.0%, to approximately $3.5 million for the nine months ended March 31, 2026, from $3.3 for the nine months ended March 31, 2025.

Our gross profit from their major revenue categories is summarized as follows:

		For the Nine Months Ended March 31,
		2026				2025				Change				Change (%)
		(Unaudited)				(Unaudited)
Tablet products
Gross (loss) profit		$	(32,909	)		$	79,956			$	(112,865	)			(141.2	)%
Gross (loss) profit percentage			(8.0	)%			20.4	%			(28.3	)%
Mobile phone products
Gross profit		$	2,488,148			$	1,121,406			$	1,366,742				121.9	%
Gross profit percentage			6.1	%			2.4	%			3.7	%
Wearable products and others
Gross (loss) profit		$	(262,889	)		$	409,519			$	(672,408	)			(164.2	)%
Gross(loss) profit percentage			(8.8	)%			12.2	%			(21.0	)%
App service commission revenue
Gross profit		$	1,314,402			$	1,606,804			$	(292,402	)			(18.2	)%
Gross profit percentage			100.0	%			100.0	%			0.0	%
Other services
Gross profit		$	4,018			$	34,470			$	(30,452	)			(88.3	)%
Gross profit percentage			88.2	%			62.6	%			25.6	%
Total
Gross profit		$	3,510,770			$	3,252,155			$	258,615				8.0	%
Gross profit percentage			7.7	%			6.3	%			1.4	%

For the nine months ended March 31, 2026 and 2025, our overall gross profit percentage was 7.7% and 6.3%, respectively. The increase in gross profit percentage of 1.4% was primarily due to the increase in gross profit percentage for mobile phone products, which accounted for 71% of our gross profit.

Gross (loss) profit percentage of tablets decreased from 20.4% for the nine months ended March 31, 2025 to (8.0) % for the same period in 2026. This was primarily due to the inventory impairment related to slow-moving inventory of approximately $0.1 million.

Gross profit percentage for mobile phones increased from 2.4% for the nine months ended March 31, 2025 to 6.1% for the same period in 2026. This was primarily due to the increasing sales of new phone models with higher gross profit margins and the reduction of shipping and tariff costs as we negotiated with our vendor to cover such costs. The increase was offset by the inventory impairment related to slow-moving inventory of approximately $3.7 million.

Gross (loss) profit percentage for wearable products and others decreased from 12.2% for the nine months ended March 31, 2025 to (8.8) % for the same period in 2026. This was primarily due to the increasing sales of products with lower gross profit margins and the inventory impairment related to slow-moving inventory of approximately $0.8 million.

For the nine months ended March 31, 2026 and 2025, our gross profit percentage of App service commission was 100.0%. This high margin was primarily attributable to the nature of App service commission revenue, which was commission based revenue that was earned at a point in time when the revenue is generated from the App, that is when clicks and/or impressions, activation of Apps, and installation of additional Apps occur at a point in time when the end users of the mobile devices interact with those Apps. We earned the App revenue share (service commission) from our partners without incurring any direct cost, as the pre-installation expenses were included in the research and development expenses prior to installation, and any labor costs with minimal time spent were immaterial to be allocated to cost of revenue.

Gross profit percentage for other services increased from 62.6% for the nine months ended March 31, 2025 to 88.2% for the same period in 2026. Gross profit percentage for other services was insignificant in our operations for the nine months ended March 31, 2026 and 2025.

Operating Expenses

Total operating expenses increased by approximately $2.6 million, or 24.3%, to approximately $13.5 million for the nine months ended March 31, 2026, from approximately $10.9 million for the nine months ended March 31, 2025.

Our operating expenses are summarized as follows:

		For the Nine Months ended March 31,
		2026				2025				Change ($)				Change (%)
		(Unaudited)				(Unaudited)
Operating expenses
Selling expenses		$	3,008,663			$	4,393,150			$	(1,384,487	)			(31.5	)%
General and administrative expense			8,376,858				4,361,716				4,015,142				92.1	%
Research and development - related party			-				91,168				(91,168	)			(100.0	)%
Research and development			1,585,228				1,550,833				34,395				2.2	%
Provision of credit losses			1,765,169				464,988				1,300,181				279.6	%
Impairments of right-of-use assets			25,855,427				-				25,855,427				100.0	%
Total operating expense		$	40,591,345			$	10,861,855			$	29,729,490				273.7	%

The increase in operating expenses was mainly attributed to the following:

Selling Expenses

Selling expenses decreased approximately $1.4 million, or 31.5%, to approximately $3.0 million for the nine months ended March 31, 2026, from approximately $4.4 million for the nine months ended March 31, 2025. The decreased selling expenses was mainly attributable to approximately $1.1 million decrease in commission, payroll and payroll related expenses and approximately $0.7 million decrease in consulting fees during the six months ended December 31, 2025, as we reduced salespersons and consultants to reduce expenses and streamline sales department. The decrease was offset by approximately $0.1 million increase in stock-based compensation as we granted restricted stock units in November 2024 to our sales team members under employee incentive plan, and approximately $0.3 million increased in advertising and marketing expenses primarily due to the increased marketing investment in e-commerce channels.

General and Administrative Expenses

General and administrative expenses increased approximately $4.0 million, or 92.1%, to approximately $8.4 million for the nine months ended March 31, 2026 from approximately $4.4 million for the nine months ended March 31, 2025. The increased general and administrative expense were mainly attributable to the approximately $0.6 million increase in professional expense as we became a public company and incurred additional capital market and legal consulting fees, approximately $0.6 million increase in salary and wages as a result of allocating certain personnel compensation from selling expenses to general and administrative expenses, reflecting a change in the personnel's primary responsibilities, approximately $2.7 million increase in rent due to the new warehouse leases that commenced in July 2025 and January 2026, and approximately $0.2 million increase in stock-based compensation expenses as we granted restricted stock units in November 2024 to our general and administrative team members under employee incentive plan.

Research and Development - related party

Research and development ("R&D") expenses from a related party decreased by approximately $91,000, or 100.0%, where the decrease was primarily due to an R&D project which commenced in 2024 and was completed in June 2025. During the nine months ended March 31, 2025, a related party completed additional 40% of the remaining 5G development project pursuant to a R&D agreement between us and the related party, and we recognized a R&D expense approximately of $91,000 accordingly based on the progression of the R&D project. We did not have this expense for the same period in 2026.

Research and Development

R&D expenses were $1.6 million for the nine months ended March 31, 2026, remaining consistent with the same period in 2025.

Provision of credit losses

Provision of credit losses increased by approximately $1.3 million, or 279.6%, from $0.5 million for the nine months ended March 31, 2025 to approxmiamtley $1.8 million for the same period in 2026. The increase was primarily due to continued aging of receivables, as well as our assessment of historical collection experience and probability of recovery from customers and customer groups.

Impairments of right-of-use assets

Impairments of right-of-use assets increased by approximately $25.9 million, or 100.0%, from $0 for the nine months ended March 31, 2025 to approximately $25.2 million for the same period in 2026. The increase was primarily attributable to impairment charges recognized following the change in our business strategy because we began engaging in dropship arrangement in our wholesale business and we are no longer required to use our warehouse space. As a result, our management decided to sublease our warehouse with lesser value as compared to our current lease payments, which indicated that the carrying amount of the right-of-use assets was not recoverable and exceeded their estimated fair value by approximately $25.9 million.

Other (expense) income, net

Our other expense, net is summarized as follows:

		For the Nine Months ended March 31,
		2026				2025				Change				Change (%)
		(Unaudited)				(Unaudited)
Other (expense) income
Interest expense		$	(6,319,324	)		$	(3,005,186	)		$	(3,314,138	)			110.3	%
Other expense, net			(21,450	)			(257	)			(21,193	)			8,246.3	%
Change in fair value of earnout liabilities			-				5,687,989				(5,687,989	)			(100.0	)%
Total other (expense) income, net		$	(6,340,774	)		$	2,682,546			$	(9,023,320	)			(336.4	)%

Total other (expense) income, net decreased by approximately $9.0 million, or 336.4%, to approximately $6.3 million of other expense, net for the nine months ended March 31, 2026, from approximately $2.7 million of other income, net for the nine months ended March 31, 2025. The decrease was primarily due to the increase of approximately $3.3 million interest expenses incurred related to the financing offered by our vendors based upon the timing of our payment to their accounts payable - supplier financing and the decrease of approximately $5.7 million of change in fair value of earnout liabilities as we no longer had earnout liabilities after June 30, 2025.

Provision for income taxes

There was no provision for income taxes for each of the nine months ended March 31, 2026 and 2025 as we had made full allowance of our deferred tax assets on net operating losses.

Net Loss

Net loss increased by approximately $38.5 million, or 781.3%, to approximately $43.4 million for the nine months ended March 31, 2026, from approximately $4.9 million for the nine months ended March 31, 2025. Such change was mainly due to the reasons discussed above.

Foreign Currency Translation Adjustment

Changes in foreign currency translation adjustment of approximately $12,000 are mainly due to the fluctuation of foreign exchange rates between SGD (the functional currency of one of our subsidiaries) and the USD dollar (reporting currency) for the nine months ended March 31, 2026.

Liquidity and Capital Resources

In assessing liquidity, we monitor and analyses cash on-hand and operating and capital expenditure commitments. Our liquidity needs are to meet working capital requirements, operating expenses, and capital expenditure obligations. Debt financing in the form of convertible promissory note and cash generated from operations have been utilized to finance working capital requirements.

As of March 31, 2026, we had cash and cash equivalents of approximately $3.2 million, while we had working capital deficit of approximately $24.9 million and accumulated deficit of approximately $63.5 million. During the nine months ended March 31, 2026, we had net loss of approximately $43.4 million.

If we are unable to generate sufficient funds to finance the working capital requirements within the normal operating cycle of a twelve-month period from the date of the unaudited condensed consolidated financial statements are issued, we may have to consider supplementing our available sources of funds through the following sources:

●

Other available sources of financing from banks, other financial institutions or private lenders;

●

Financial support and credit guarantee commitments from our related parties; and

●

Equity financing.

Our management has determined that the factors discussed above have raised substantial doubt about our ability to continue as a going concern within one year after the date that the unaudited condensed consolidated financial statements are issued. The unaudited condensed 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.

The following summarizes the key components of cash flows for the nine months ended March 31, 2026 and 2025.

		For the Nine Months Ended March 31,
		2026				2025
		(Unaudited)				(Unaudited)
Net cash provided by (used in) operating activities		$	1,336,941			$	(4,653,662	)
Net cash provided by (used in) investing activities			8,826				(40,236	)
Net cash (used in) provided by financing activities			(17,988	)			7,894,208
Effect of exchange rate changes			(12,758	)			2,297
Net change in cash and cash equivalents		$	1,315,021			$	3,202,607

Operating activities

Net cash provided by operating activities was approximately $1.3 million for the nine months ended March 31, 2026 and was primarily attributable to (i) non-cash expenses of approximately $34.9 million, which includes depreciation, amortization of operating right-of-use assets, stock-based compensation, impairment of inventories, impairments of right-of-use assets, and provision of credit losses, net, (ii) approximately $6.1 million increase in accounts payable - supplier financing due to increased purchases for dropship orders, (iii) approximately $1.4 million decrease in accounts receivable aligned with the decrease of sales and ongoing collection of outstanding receivables, (iv) approximately $1.9 million increase in other payables and accrued liabilities as we committed to repaying supply chain finance interests and the recognition of obligations to pay R&D expenses under milestone-based installments pursuant to the R&D agreement entered into in January 2026, (v) approximately $1.1 million decrease in inventories as we engaged in dropship arrangement beginning in July 2025 where products were shipped directly to our customers rather than stored in our warehouse as inventory, (vi) approximately $0.4 million decrease in contract assets primarily due to the progression of historical purchase orders into production and the sale of inventory, (vii) approximately $0.6 million decrease in prepaid expenses and other current assets due to the collection of prepayment refund from canceled purchase orders and the utilization of prepaid rent following the commencement of warehouse leases in July 2025 and January 2026, and (viii) approximately $0.1 million increase in contract liabilities. The cash outflow was offset by (ix) approximately $43.4 million net loss, (x) approximately $1.5 million payment in operating lease liabilities as we commenced our warehouse leases in July 2025 and January 2026, and (xi) approximately $0.3 million decrease in other payable - related parties primarily due to the repayment of unconverted working capital loan balance.

Net cash used in operating activities was approximately $4.7 million for the nine months ended March 31, 2025 and was primarily attributable to (i) approximately $4.9 million net loss, (ii) approximately $14.9 million increased in inventories because we stored more inventories to meet the demand of our anticipated sales orders, (iii) approximately $7.4 million increased in accounts receivable due to the increase of credit sales during the period, (iv) non-cash expenses of approximately $5.7 million, which primarily attributed to the change in fair value of earnouts, (v) approximately $1.0 million increased in prepaid expenses and other current assets due to our prepaid rent payment in connection with our warehouse lease to be commenced in February 2025, (vi) approximately $1.1 million increased in security deposit because we rented more office and warehouse space, (vii) approximately $0.3 million decreased in tax payable of ACAC due to the payment of tax at business combination, and (viii) approximately $0.4 million decrease in contract liabilities due to purchase of more inventories with vendors to meet customer demand. The cash outflow was offset by (ix) approximately $28.0 million increased in accounts payable - supplier financing due to purchase of more inventories with vendors to meet customer demand, (x) approximately $2.0 million increased in other payables and accrued liabilities mainly due to accrued professional fees that associated with business expansion, such as consulting fees, testing fees and legal fees, (xi) approximately $0.5 million increase in stock compensation due to restricted stock units granted to our employees, consultants and independent director under employee incentive plan, and (xii) approximately $0.5 million provision for credit losses due to the increasing risk of uncollectable accounts from one customer.

Investing activities

Net cash provided by investing activities was approximately $9,000 for the nine months ended March 31, 2026, attributable to the proceeds from sale of equipment.

Net cash used in investing activities was approximately $40,000 for the nine months ended March 31, 2025, attributable to approximately $68,000 purchase of some equipment for warehouse and an automobile for our business uses and offset by approximately $28,000 proceeds from sale of the automobile.

Financing activities

Net cash used in financing activities was approximately $18,000 for the nine months ended March 31, 2026, mainly attributable to the principal payments of long-term loan.

Net cash provided by financing activities was approximately $7.9 million for the nine months ended March 31, 2025, mainly attributable to approximately $19.7 million proceeds from the reverse recapitalization and $9.0 million proceeds from issuance of convertible promissory notes, proceeds of approximately $0.1 million from issuance of common stock through exercise of warrant, offset by the payment of redeeming shareholders in connection with the business combination of approximately $20.5 million, the repayment of short-term loans of approximately $0.3 million and approximately $0.1 million in payments of deferred transaction costs.

Off-Balance Sheet Arrangements

As of March 31, 2026, we have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to our members.

Critical Accounting Estimates

The unaudited condensed consolidated financial statements and accompanying notes have been prepared in accordance with U.S. GAAP. The preparation of these unaudited condensed consolidated financial statements and accompanying notes requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. Estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis of making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We have identified certain accounting estimates that are critical to the preparation of the unaudited condensed consolidated financial statements. Certain accounting estimates are particularly sensitive because of their significance to the unaudited condensed consolidated financial statements and because of the possibility that future events affecting the estimate may differ significantly from management's current judgments. We believe that the critical accounting estimates, assumptions, and judgments that have the most significant impact on our unaudited condensed consolidated financial statements are described below.

Allowance for Credit Losses

In establishing the required allowance for credit loss accounts, we consider historical collection experience, aging of the receivables, the economic environment, industry trend analysis, and the credit history and financial condition of the customers. Management reviews its receivables on a regular basis to determine if the allowance for credit loss accounts is adequate and adjusts the allowance when necessary. Delinquent account balances are written off against allowance for credit loss accounts after management has determined that the likelihood of collection is not probable. The allowance for credit losses is based on a review of specifically identified customer accounts in addition to an overall aging analysis which is applied to accounts pooled on the basis of similar risk characteristics. Judgments are made with respect to the collectability of accounts receivable within each pool based on historical experience, current payment practices and current economic trends based on our expectations over the expected life of the receivable, which is generally ninety days or less. With our accounts receivable balances, management would estimate its expected credit losses using an aging method with a baseline reserve percentage with the additional consideration of current industry and economic trend. Although actual losses have not differed materially from our previous estimates, future losses could differ from our current estimates. As of March 31, 2026 and June 30, 2025, $1,848,648 and $595,907, respectively, of allowance for credit losses of accounts receivable was recorded, and the Company had net accounts receivable of $4,112,151 and $6,786,792, respectively.

Income Taxes

We record deferred tax assets and liabilities based on the net tax effects of tax credits, operating loss carryforwards, and temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes compared to the amounts used for income tax purposes. We regularly review our deferred tax assets for recoverability with consideration for such factors as historical losses, projected future taxable income, and the expected timing of the reversals of existing temporary differences. A valuation allowance is recorded when it is more likely than not that some portion or all of the deferred tax assets will not be realized. Management believes the deferred tax assets, based largely on the history of tax losses, warrant a full valuation allowance based on the weight of available negative evidence. Currently, the key factor in our assumption of providing 100% valuation allowance was purely based on our historical operating losses. Once we begin generating profit, we will re-evaluate whether providing 100% valuation allowance is appropriate or if we can reassess such number.

Inventory Impairment

Inventory impairment is recognized to state our inventories at the lower cost or net realizable value. At least a quarterly basis, inventories are reviewed for potential write-downs for estimated obsolescence or unmarketable inventories which equals the difference between the costs of inventories and the estimated net realizable value. Net realizable value is determined based on management's estimates of selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. These estimates require significant judgement and are based upon past sales experience, forecasts for future demand, market conditions, and other relevant factors. During the three months ended March 31, 2026 and 2025, inventory write-downs of $3,092,282 and $0, respectively, were recorded based on management's estimates. During the nine months ended March 31, 2026 and 2025, inventory write-down s of $4,663,144 and $0, respectively, were recorded based on management's estimates.

When inventories are written down to net realizable value, they are not marked up subsequently based on changes in underlying facts and circumstances.

Impairment of long-lived assets

The impairment of long-lived assets is reviewed 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. During the period, management identified certain impairment indicators for right-of-use assets, including a current period loss, a history of losses, and management's decision to sublease our warehouse. These factors required management to assess whether the carrying value of the asset group was recoverable. Recoverability is assessed 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. The right-of-use assets were determined to be impaired and the impairment recognized was the excess of the carrying amount over the fair value of the assets. Fair value was determined by the discounted cash flow method. The approach for determining and measuring impairment in long-lived asset groups is to exclude operating lease liabilities from the asset group. The discount rate used in the estimate of discounted cash flows is 8.70%, consistent with our incremental borrowing rate as of January 1, 2026, because from market participant and sublease standpoint as the interest rate in the market, our credit environment and market spreads have held steady with no change since January 1, 2026. These estimates are subject to significant uncertainty, particularly with respect to assumptions used in forecasting future cash flows. Changes in these assumptions could materially affect the estimated fair value and the amount of impairment recognized. For example, a decrease in projected sublease income or occupancy rates could result in additional impairment charges. Management believes the assumptions and methodology used are reasonable and consistent; however, these estimates may change in the near term as market conditions, sublease arrangements, and the Company's business strategy evolve. During the three months ended March 31, 2026 and 2025, the Company recognized approximately $25.9 million and $0 impairment of long-lived assets, respectively. During the nine months ended March 31, 2026 and 2025, the Company recognized approximately $25.9 million and $0 impairment of long-lived assets, respectively.