Annual Report for Fiscal Year Ending June 30, 2026 (Form 20-F)

OPERATING AND FINANCIAL REVIEW AND PROSPECTS

The following discussion and analysis should be read together with our consolidated financial statements and the related notes included elsewhere in this annual report. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in such forward-looking statements as a result of various factors, including those described under Item 3.D. "Risk Factors" and elsewhere in this annual report.

A. Operating Results

Overview and Recent Developments

Datasea Intelligent Technology Ltd. ("DIT," the "Company," "we," "us" or "our") is a British Virgin Islands business company. On April 15, 2026, we completed a redomiciliation merger pursuant to which Datasea Inc., our former Nevada parent company, merged with and into DIT, with DIT continuing as the surviving entity. Following the redomiciliation, DIT succeeded to the listed-company status and business operations of Datasea Inc. and became a foreign private issuer. The redomiciliation did not materially change our operating businesses, which continue to be conducted principally through our PRC operating entities, with Datasea Acoustics LLC supporting U.S. market development and related activities.

During FY 2026, our business was organized around two principal business platforms: Acoustic Intelligence and AI Multimodal Digitalization and AI-Agent Business. Our acoustic-intelligence business is built on our capabilities in the generation, transmission and control of sound waves and ultrasound, acoustic and vibroacoustic stimulation, physiological and related signal acquisition and processing, closed-loop feedback, sensor integration and intelligent-hardware engineering, together with AI-based analytics and algorithmic capabilities. We are focused on applying these capabilities to the productization and commercialization of acoustic healthcare, acoustic medical and other applications. Our AI Multimodal Digitalization and AI-Agent Business builds on our existing multimodal data-processing, digital-platform, model-access and business-system capabilities and is increasingly focused on AI execution agents that can be embedded into actual enterprise operating workflows, perform defined business tasks and provide continuing services, including content generation, marketing execution, customer interaction, data analysis, health-management support and store operations.

During FY 2026, we actively adjusted our business mix by reducing certain standardized AI multimodal, traffic-related and other lower-margin digital-service activities and reallocating a greater portion of our operating and R&D resources to acoustic-intelligence products, the NeuroVibe system and AI execution-agent services. As part of this adjustment, our acoustic business placed greater emphasis on productization, regulatory preparation and commercial deployment, while our AI Multimodal Digitalization and AI-Agent Business continued to develop from predominantly project-based and one-time delivery models toward platform-based, SaaS, continuing AI execution-agent and usage-based service models. Because these newer and higher-priority businesses remained at relatively early stages of commercialization during FY 2026, their revenue contribution was not sufficient to offset the decline in revenue from the standardized digital-service activities that we reduced. As a result, consolidated revenue declined year over year, while AI multimodal digitalization services remained the principal contributor to our revenue for FY 2026.

FY 2026 Operating and Financial Performance

During FY 2026, the Company actively adjusted its business mix by reducing certain standardized, lower-margin AI multimodal, traffic-related and other digital-service activities and reallocating a greater portion of its operating and R&D resources to customized digital solutions, acoustic-intelligence products, the NeuroVibe system and AI execution-agent services. As a result, revenue decreased to approximately $40.70 million from approximately $71.62 million in fiscal 2025, or approximately 43.17%, as the reduction in certain existing service activities was not yet offset by newer businesses that remained at relatively early stages of commercialization.

Despite the decline in revenue, cost of revenues decreased at a faster rate, resulting in gross profit increasing from approximately $2.44 million to approximately $4.16 million and gross margin improving from 3.41% to 10.21%. Total operating expenses decreased approximately 15.0%, while R&D expenses increased to approximately $2.57 million from approximately $0.91 million as the Company increased investment in acoustic intelligence, NeuroVibe, related biofeedback technologies and AI-agent development. As a result, operating loss narrowed by approximately 55.3% and net loss attributable to the Company narrowed by approximately 57.0%.

Net cash provided by operating activities was approximately $1.98 million in FY 2026, compared with net cash used in operating activities of approximately $2.37 million in fiscal 2025. Accounts receivable also decreased to approximately $0.95 million as of June 30, 2026 from approximately $1.37 million as of June 30, 2025. The factors affecting individual revenue, expense and working-capital categories are discussed in greater detail below under "Results of Operations" and "Liquidity and Capital Resources."

These results should not be interpreted as indicating that the Company's business transition has been completed or that the financial trends experienced during FY 2026 will necessarily continue. Revenue declined materially during FY 2026, the Company continued to have a working-capital deficit, and NeuroVibe, AI execution agents and other newer offerings remained at relatively early stages of commercialization.

FY 2026 Selected Financial and Operating Metrics

Acoustic Intelligence Business Developments

During FY 2026, our commercialization efforts within acoustic intelligence were concentrated primarily on acoustic healthcare and acoustic medical applications.

Acoustic healthcare is one of the earlier areas in which our acoustic-intelligence technologies have achieved productization and commercialization. Relevant products and services include applications in air health, sleep health, foot health, head and personal care. During calendar year 2025, Shuhai Jingwei, one of our acoustic-intelligence operating entities, generated approximately US$1,861,952.77 of revenue, including approximately US$575,434.79 of product revenue and approximately US$1,285,090.10 of service revenue. Although this business remains relatively small compared with our consolidated revenue, management views this revenue as evidence that certain acoustic technologies have progressed beyond product development and validation into paid commercial applications.

Our acoustic medical business made significant progress during FY 2026 in product engineering and regulatory preparation, followed by initial commercial-order validation after the reporting period. NeuroVibe Biofeedback System is our first-generation acoustic-medical product developed around acoustic intelligence, non-invasive biofeedback and brain-computer-interaction technologies. It is a non-invasive biofeedback system integrating acoustic brain-computer-interface technologies with AI-assisted neurotechnology capabilities. Depending on the specific model and configuration, NeuroVibe may integrate physiological or EEG-related signal acquisition, acoustic or vibroacoustic stimulation, signal processing, AI-assisted analysis, feedback functions and personalized parameter adjustment.

During FY 2026, we completed the product development of NeuroVibe NV-02 and NV-03 and advanced the related regulatory pathway and filing preparations. Following the end of the reporting period, the relevant operating entity completed U.S. FDA establishment registration and device listing for the NeuroVibe NV-02 and NV-03 models. Based on the FDA registration information currently available to us, the listed devices are associated with product code HCC, are classified as Class II devices and fall under 21 CFR 882.5050, Biofeedback Device.

In China, two of our operating entities entered into pre-sale agreements following the end of the reporting period for an aggregate of 6,200 units of NeuroVibe NV-02 with a stated aggregate contract value of approximately US$3,539,709.28. We believe these agreements provide early customer-demand and commercial-order validation for NeuroVibe and move the product beyond product development and regulatory preparation toward delivery preparation and market-application development. However, the stated contract amounts do not constitute recognized or guaranteed revenue. The amount and timing of any revenue recognition will depend on actual manufacturing and delivery, customer acceptance, settlement, contractual performance and applicable accounting requirements.

In addition to acoustic healthcare and acoustic medical applications, we continued R&D, collaborative validation, pilot deployment and early-commercialization activities in industrial acoustics, agricultural acoustics and acoustic IoT. These businesses were not a principal source of consolidated revenue during FY 2026. Acoustic healthcare and acoustic medical applications currently remain our higher-priority near-term productization and commercialization areas.

AI Multimodal Digitalization and AI-Agent Developments

Our AI multimodal digitalization business remained the principal contributor to consolidated revenue during FY 2026. Historically, this business consisted primarily of multimodal digital services, new-media marketing solutions, enterprise digitalization, digital-rural solutions and related project-based services. During FY 2026, we continued to deliver such services while shifting the revenue mix away from lower-margin standardized activity and toward customized technology solutions and higher-value services.

At the same time, we further developed our existing multimodal platforms, model-access capabilities, data-processing capabilities and business-system functionality into AI execution agents. We position AI execution agents as an execution layer connecting artificial-intelligence capabilities with actual enterprise operating activities, extending AI beyond information processing, content generation and analysis into defined task execution and continuing operating services.

We currently focus on the development and commercialization of four principal AI execution-agent products: the Interactive Execution Agent, Voiceprint Execution Agent, Business Execution Agent and Marketing Execution Agent. These agents are designed respectively to support human-language voice and text interaction and task entry, customer identification and needs analysis, customer service and continuing operations, and customer acquisition and marketing execution. They may be deployed independently or combined, depending on customer workflows, into an AI Execution Agent Matrix. Through this architecture, we seek to connect customer acquisition, customer identification, consultation and conversion, membership operations, marketing execution, post-sale follow-up and repurchase into a continuing AI-enabled execution process.

During FY 2026, our first generation of business execution agents began to enter actual enterprise-use scenarios, including health and wellness retail, store-based operations and digital-marketing applications. Depending on the applicable authorization and use case, these agents may perform customer interaction, content generation, membership operations, marketing tasks, data analysis, follow-up outreach and other predefined operating actions. For us, this represents an important transition from AI agents as internal R&D and platform functionality toward commercially delivered services for enterprise customers.

In addition to the four AI execution agents and the AI Execution Agent Matrix, we have begun developing Tokens-based computing and AI service-call capabilities used in the operation of our AI agents. In our business, "Tokens" refers to service units or credits corresponding to large-language-model calls, AI computing-resource consumption and related digital-execution services. Tokens do not constitute cryptocurrency, virtual currency, digital assets or security tokens. Depending on the applicable contractual arrangement, customers may use service accounts and consume such credits based on actual model calls, content generation, marketing execution, data analysis, agent usage and other AI services, with charges and settlement based on actual consumption or agreed service terms.

From a commercial perspective, we are developing a combined service model consisting of software and AI execution-agent capabilities, Tokens-based computing and model access, and continuing execution services. We believe this structure is extending portions of our AI Multimodal Digitalization and AI-Agent Business from traditional project development and one-time delivery toward platform-based services, SaaS, continuing execution and usage-based service models.

Following fiscal year-end, certain of our operating entities entered into or continued to advance cooperation agreements and related pre-orders for Tokens-based computing and AI execution-agent services. The relevant services may include large-language-model calls, AI computing, content generation, intelligent advertising placement, marketing execution, data processing, data analytics, SaaS and related technical support. Under one executed arrangement, anticipated monthly service usage is approximately US$428,363.37 to approximately US$1,427,877.89. Based on certain executed or developing arrangements currently available to us, the potential monthly service-usage ranges stated in related pre-orders may, in the aggregate, reach up to approximately US$7,139,389.44.

These amounts represent estimated potential service-usage ranges stated in customer agreements or pre-orders only and do not constitute minimum purchase commitments, guaranteed revenue, recognized revenue or backlog. The amount of revenue ultimately generated from our AI-agent and Tokens-based computing services will depend on actual customer onboarding, service-call volumes, actual Tokens consumption, task execution, billing confirmation, customer acceptance and settlement.

Overall, our AI Multimodal Digitalization and AI-Agent Business is developing three interconnected levels of commercialization. The four AI execution agents provide the core product capabilities; the AI Execution Agent Matrix combines these capabilities into integrated enterprise and physical-store operating solutions; and Tokens-based and usage-based services provide the model-access, computing-resource and commercial-billing infrastructure required for continuing agent operation. Our ability to convert these models into recurring and scalable revenue will depend on customer adoption, usage frequency, service-delivery efficiency, model and cloud-computing costs and customer retention.

The following table sets forth our financial results for the years ended June 30, 2026, 2025 and 2024, respectively:

FY 2026 Operating Performance

For the fiscal year ended June 30, 2026, revenue was $40,698,799, compared with $71,616,820 for the fiscal year ended June 30, 2025, a decrease of $30,918,021, or 43.17%. Gross profit was $4,156,806 for FY 2026 compared with $2,443,948 for fiscal 2025, an increase of $1,712,858, or 70.09%. Gross margin increased to 10.21% from 3.41%. Net loss attributable to the Company decreased to $2,186,440 for FY 2026 from $5,085,694 for fiscal 2025.

Management believes the decline in revenue and improvement in gross margin should be considered together. During the period, we reduced exposure to standardized, lower-margin AI multimodal traffic and related services and increased the relative contribution of customized digital solutions, acoustic products and other technology-driven offerings. As a result, revenue declined while gross profit increased.

Revenue

Revenue was approximately $40.70 million for FY 2026, compared with approximately $71.62 million for fiscal 2025, representing a decrease of approximately $30.92 million, or 43.17%. The decrease was primarily attributable to our deliberate reduction of lower-margin AI multimodal traffic and related standardized services as we continued to adjust our business mix. AI multimodal digitalization remained the principal contributor to consolidated revenue during FY 2026; however, we placed greater emphasis on customized, solution-oriented and technology-driven services rather than standardized, lower-margin activities that depend primarily on volume expansion.

Based on our current business classification, approximately $39.96 million of FY 2026 revenue was attributable to our AI multimodal digitalization business, approximately $0.63 million was attributable to our acoustic-intelligence business, and a small amount was generated from other businesses. For fiscal 2025, approximately $70.68 million of revenue was attributable to AI multimodal digitalization, approximately $0.58 million was attributable to acoustic intelligence, with the remainder principally consisting of software sales and other revenue. These business classifications are based primarily on the nature of the relevant contracts, the principal deliverables and the applicable accounting classification. Accordingly, certain technology solutions that incorporate acoustic technologies, platform capabilities or customized services may, depending on their principal performance obligations and delivery content, be classified within AI multimodal digitalization or other technology services rather than entirely within acoustic-intelligence product revenue.

The year-over-year decline was concentrated primarily in our traffic-related and other standardized AI multimodal communication services. Revenue from these activities decreased from approximately $69.44 million in fiscal 2025 to approximately $36.27 million in FY 2026, a decrease of approximately $33.16 million. The decrease primarily reflected the Company's decision to reduce its exposure to certain lower-margin service activities, including by not renewing or downsizing selected customer contracts. Changes in pricing were not a material factor in the year-over-year decline.

From a business-development perspective, acoustic-intelligence revenue represented a relatively small portion of consolidated revenue during FY 2026, but the acoustic business has begun to demonstrate multiple forms of commercialization, including product sales, technical services and commercial-order validation.

During FY 2026, recognized revenue from our acoustic business was derived primarily from air-health, sleep-health and other acoustic-healthcare product sales and related services, while NeuroVibe remained principally in the stages of product finalization, regulatory advancement, commercial-order validation and delivery preparation. As of the date of this annual report, we had entered into China-market pre-sale agreements for an aggregate of 6,200 units of NeuroVibe, with a stated aggregate contract value of approximately US$3,539,709.28. Such contract amounts do not constitute recognized revenue unless and until the applicable revenue-recognition criteria are satisfied, including, as applicable, product manufacturing and delivery, customer acceptance and other contractual requirements. Accordingly, the financial contribution of our acoustic business in FY 2026 primarily reflected acoustic-healthcare products that had reached an earlier stage of commercialization and did not yet fully reflect potential future revenue from NeuroVibe and other newer acoustic products.

Cost of Revenues and Gross Profit

Cost of revenues was approximately $36.54 million for FY 2026, compared with approximately $69.17 million for fiscal 2025, representing a decrease of approximately $32.63 million, or 47.2%, which exceeded the 43.17% decline in revenue during the same period. Cost of revenues principally consisted of AI multimodal digital-platform costs, cloud-platform and service-delivery costs, and costs associated with acoustic products and related businesses. The decrease was primarily attributable to the lower scale of our AI multimodal digitalization business and our deliberate reduction of standardized, lower-margin activities.

For the FY 2026, the costs were as follows: $35.98 million for 5G AI multimodal digital, $471,859 for the acoustic intelligence business, $86,975 for the China Unicorn Project, and the cost of other was $1,756. For the FY 2025 the costs were as follows: $68.82 million for 5G AI multimodal digital, $316,415 for software sales, and $41,007 for the acoustic intelligence business.

Gross profit increased to approximately $4.16 million in FY 2026 from approximately $2.44 million in fiscal 2025, representing an increase of approximately $1.71 million, or 70.09%. Gross margin increased from 3.41% to 10.21%, an improvement of approximately 6.8 %. The improvement in gross margin was primarily driven by the rapid growth of high-margin customized solution projects. Despite the decline in consolidated revenue, both gross profit and gross margin improved materially, principally because cost of revenues declined at a faster rate than revenue and because our business mix increasingly shifted toward customized solutions, technology-driven services and higher-value offerings.

Management believes the improvement in gross profit and gross margin represents an important initial operating result of our FY 2026 business-mix adjustment. During the period, we reduced certain standardized AI multimodal activities that generated significant revenue volume but relatively limited gross-profit contribution and redirected resources toward customized digital solutions, acoustic-intelligence products, AI execution agents and other technology-driven offerings. Although acoustic intelligence and AI execution-agent businesses remain at an early stage in terms of their contribution to consolidated revenue, the improvement in our overall gross-profit profile indicates progress in the quality and composition of our revenue base.

Selling Expenses

Selling expenses were $1,218,006 for FY 2026, compared with $1,980,224 for fiscal 2025, representing a decrease of $762,218, or approximately 38.5%. The decrease was mainly due to the decrease of advertising and marketing expenses by $1,318,759, and decreased payroll expense and benefits by $19,571, which was partly offset by increased service fee by $36,951, increased rent expense by $30,941, and increased consulting fee by $516,500.

While overall selling expenses decreased, we placed greater emphasis on allocating sales and marketing resources toward acoustic-intelligence products, customized solutions and other priority commercialization initiatives, while reducing promotional spending on certain lower-margin, scale-oriented businesses. Management expects future sales and marketing expenditures to be more closely aligned with product-commercialization progress, key-customer development and channel expansion.

Research and Development Expenses

Research and development expenses were $2,565,116 for FY 2026, compared with $914,996 for fiscal 2025, representing an increase of $1,650,120, or approximately 180.3%.

The increase in R&D expenses primarily reflected our increased investment in core technologies and product development. In acoustic intelligence, our R&D activities focused on NeuroVibe, biofeedback and brain-computer-interface-related technologies, acoustic and vibroacoustic stimulation, physiological and EEG-related signal acquisition and processing, signal analysis, closed-loop feedback, sensor and hardware-software integration, and product engineering. In AI, our R&D activities focused on AI multimodal technologies, natural-language and voice interaction, model access and orchestration, AI execution agents, agent coordination, automated task execution, data feedback and related software platforms. Related activities also included software development, system integration, engineering validation, prototype and product testing, and technical preparation for commercialization.

R&D expenses increased substantially despite a year-over-year decline in total operating expenses. Management believes this reflects a reallocation of resources away from certain selling, administrative and general operating costs and toward core technologies, product development and engineering capabilities. We intend to continue aligning R&D investment with identifiable technology, product-engineering and commercialization milestones in order to improve the efficiency with which R&D results are converted into products and services.

In addition to the internal R&D expenditures recognized as expenses during the period, we also acquired certain patents, software copyrights and other technology-related intangible assets during FY 2026 to complement our existing technology base and support product development. Certain software-copyright acquisitions from Zhixin Liu and Fu Liu constituted related-party transactions, as described in Item 7.B and the notes to our consolidated financial statements. The consideration for these related-party acquisitions was determined based on the applicable transaction terms and pricing methodology approved in connection with the respective transactions, as further described in Item 7.B and the notes to our consolidated financial statements.

The acquired intangible assets are amortized, where applicable, and evaluated for impairment in accordance with the Company's accounting policies. The recoverability of these assets depends in part on the future commercialization and financial performance of the products and services incorporating or supported by the relevant technologies. If such products or services fail to generate expected revenue or cash flows, commercialization is delayed, the underlying technologies become obsolete, or other adverse market or business developments occur, the Company may be required to recognize an impairment charge.

General and Administrative Expenses

General and administrative expenses decreased to $2,676,885 for FY 2026 from $4,703,443 for fiscal 2025, a decrease of $2,026,558, or approximately 43.1%. The decrease was mainly due to decreased professional fee by $1,291,241, decreased registration fee by $315,880, decreased amortization expense of intangible assets by $284,033, decreased rent expense by $44,647 and other G&A expense by $90,757.

The decline in general and administrative expenses was one of the principal factors contributing to the reduction in total operating expenses during FY 2026 and was consistent with our overall efforts to optimize general operating and administrative costs. At the same time that general and administrative expenses and selling expenses declined, R&D expenses increased significantly, reflecting a reallocation of operating resources toward core technologies, product development and engineering capabilities while maintaining greater discipline over overall operating expenses.

Non-Operating Income (Expenses), net

Non-operating income was $116,259 for the FY 2026, consisting mainly of interest income of $199 and other income of $116,060 which mainly consist of $71,395 government reward for incentives for enterprise cultivation. Non-operating income were $75,185 for the FY 2025, consisting mainly of interest income of $5,016 and other income of $70,169.

Net Loss

We generated net loss of $2,186,440 and $5,085,694 for the FY 2026 and 2025, respectively, a $2,899,254 or 57.01% decrease by comparing with the same period of 2025. The decrease in net loss was mainly due to increase in gross profit and decrease in operating expenses as explained above.

Management believes that the narrowing of net loss in FY 2026 primarily reflected the combined effects of improved gross-profit performance and a more efficient operating-expense structure. Notably, net loss decreased materially despite the significant increase in R&D investment, reflecting initial progress in our business-mix adjustment and operating efficiency.

Results of Operations

Comparison of the years ended June 30, 2025, and 2024

The following table sets forth the results of our operations for the years ended June 30, 2025, and 2024, respectively, indicated as a percentage of net sales. Certain columns may not add up due to rounding.

Revenues

We had revenues of $71,616,820 and $23,975,867 for the years ended June 30, 2025, and 2024, respectively, which shows a $47,640,953 or 198.7% increase as compared with the same period of 2024. The increase in revenues was mainly due to the rapid increase of 5G AI multimodal digital business in China. For the year ended June 30, 2025, revenues mainly consisted of service fees from our 5G AI Multimodal digital. The Company's 5G AI multimodal digital business is an industry leader, and the continued expansion of the Company's customer base supports the continued significant improvement of the business.

From July 1, 2024 to June 30, 2025, the Company generated revenue of $71,616,820, including $70,682,408 from the 5G AI multimodal digital business, $584,788 from acoustic intelligence business, $325,908 from software sales and $23,716 from others. From July 1, 2023 to June 30, 2024, the Company generated revenue of $23,975,867, including $23,971,879 from the 5G AI multimodal digital business, $3,988 from Acoustic Intelligence Business.

This is inseparable from the Company's research and development support and personnel support over the years, the Company's upstream and downstream chain maintenance and experience accumulation and precipitation eventually formed a huge loyal customer base, but also closely related to the thriving vitality of the 5G market.

Through its own sales team, the Company vigorously promotes and publicizes its research and development results and technology display in 5G sales, actively participates in important seminars and business fairs around the country and deeply explores the target customers related to 5G news. Through painstaking efforts and keen business acumen, we have actually obtained a stable customer flow.

The Company's top five customers for 5G AI multimodal digital business at this stage are Qingdao Ruizhi Yixing Information Technology Co., LTD., Shanghai Shixun Network Technology Co., LTD., Wuhan Xiaoming Technology Co., LTD., Xinyi Xinfanfa Information Technology Co., LTD., Nanjing Linghui Information Engineering Co., LTD. Through close business cooperation, the above customers have become stable and loyal partners of the Company and will work together in the future.

Since Q4 2023, the 5G Multimodal Communication business has demonstrated explosive growth, with Q2 2024 sales achieving a substantial improvement compared to the same period last year.

Cost of Revenues

For the year ended June 30, 2025, we recorded a cost of revenues of $69,172,872, compared to $23,501,762 for the same period in 2024, reflecting an increase of $45,671,110 or 194.3%. The cost of revenues for the year ended June 30, 2025, was primarily driven by 5G AI multimodal digital platform fees and cloud platform construction costs paid to suppliers. The increase in the cost of revenues was mainly due to the higher revenue generated from the 5G AI multimodal digital segment.

For the year ended June 30, 2025, the costs were as follows: $68.82 million for 5G AI multimodal digital, $316,415 for software sales, and $41,007 for the acoustic intelligence business. For the year ended June 30, 2024, the cost of 5G AI multimodal digital was $23.40 million, the cost of other services was $68,391, the cost of smart city was $30,928 and the cost of Acoustic Intelligence business was $2,345.

Gross Profit

Gross profit for the year ended June 30, 2025, was $2,443,948 compared to $474,105 for the year ended June 30, 2024, representing an increase of $1,969,843. This increase in gross profit was primarily driven by higher sales during the year ended June 30, 2025.

Gross margin was 3.4% for the year ended June 30, 2025, compared to 2.0% for the same period in 2024. The improvement in gross margin was primarily driven by the rapid growth of high-margin customized solution projects, along with the Company's significant increase in market share and operating income.

Selling, General and Administrative, and Research and Development Expenses

Selling expenses for the year ended June 30, 2025 were $1,980,224, compared to $3,279,627 for the same period in 2024, reflecting a decrease of $1,299,403, or 39.6%. The decrease was mainly due to the decrease of advertising and marketing expenses by $1,431,505, which was partly offset by increased service fee by $37,037, increased payroll expense by $7,148, increased rent expense and property management fee by $43,255 and increased other selling expenses by $36,620.

We incurred R&D expenses of $914,996 and $359,342 during the years ended June 30, 2025 and 2024, respectively, representing an increase of $555,654 or 154.6% as compared to the same period of 2024.

Market Promotion Team

The Company has collaborated with three influential Chinese market promotion enterprises, which leverage extensive market resources to recommend new clients for the Company and facilitate the signing of contracts with these new clients.

General and administration expenses decreased $4,257,080, or 47.5% from $8,960,523 during the year ended June 30, 2024, to $4,703,443 during the year ended June 30, 2025. The decrease was mainly due to decreased stock compensation expense by $5,050,544, decreased payroll expense by $203,752, decreased rent expense and property management fee by 121,817, decreased auto expense by $17,156, which was partly offset by increased professional service fee by $820,159, and increased trademark registration fee by $316,229.

We are treating human capital as a key indicator to drive business growth and technical innovation, also pursuing better integrated channels with related industries.

Non-Operating Income (Expenses), net

Non-operating income was $75,185 for the year ended June 30, 2025, consisting mainly of interest income of $5,016 and other income of $70,169. Non-operating expenses were $95,918 for the year ended June 30, 2024, consisting mainly of interest income of $1,975 and other expenses of $97,893.

Net (Income) Loss from Discontinued Operation

We generated net income from discontinued operation of $833,546 (which was the gain on disposal of Zhangxun) for the year ended June 30, 2024.

Net Loss from continuing operation

We generated net loss from continuing operation of $5,085,694 and $12,210,610 for the years ended June 30, 2025, and 2024, respectively, a $7,124,916 or 58.4% decrease by comparing with the same period of 2024. The decrease in net loss was mainly due to increase in gross profit and decrease of operating expenses as explained above.

Accounts Receivable and Selected Balance-Sheet Developments

As of June 30, 2026, accounts receivable was $946,891, compared with $1,374,180 as of June 30, 2025, representing a decrease of $427,289, or approximately 31.1%. Management believes the decrease primarily reflected the combined effect of lower overall revenue and collections during the period. As our business expands further into product sales, enterprise solutions, pre-sale arrangements and usage-based services, we intend to continue strengthening customer credit assessment, contract-performance management and accounts-receivable collection.

As of June 30, 2026, intangible assets were approximately $11.25 million, compared with approximately $3.50 million as of June 30, 2025. The increase primarily reflected our acquisition during the period of patents, software copyrights and other technology-related intangible assets. These assets are intended to supplement our technology platforms and product capabilities in areas including acoustic intelligence, NeuroVibe, AI multimodal technologies and AI execution agents.

The increase in intangible assets reflects our greater investment in core technologies and intellectual property, while also increasing the significance of judgments relating to useful lives, amortization methods and impairment assessments in our future financial reporting. For additional information regarding the related accounting judgments and estimates, see Item 5.E and the notes to our consolidated financial statements included elsewhere in this annual report.

As of June 30, 2026, our outstanding bank borrowings increased compared with the prior year, primarily reflecting our use of bank credit facilities and other financing sources to support working capital, technology investment and ongoing operating activities. Such financing increased our available sources of short-term capital, but also increased our interest expense and debt-service obligations. Our future ability to obtain bank financing or capital-market financing, and the terms of any such financing, will depend on factors including our operating performance, financial condition, lender policies and prevailing capital-market conditions.

B. Liquidity and Capital Resources

Going Concern

Our consolidated financial statements have been prepared on a going-concern basis, which contemplates the realization of assets and settlement of liabilities in the ordinary course of business. We incurred a net loss of approximately $2.19 million for FY 2026, compared with approximately $5.09 million for fiscal 2025. Net cash provided by operating activities was approximately $1.98 million in FY 2026, compared with net cash used in operating activities of approximately $2.37 million in fiscal 2025.

As of June 30, 2026, we had an accumulated deficit of approximately $46.71 million, cash and restricted cash of $607,922, current assets of approximately $3.27 million and a working-capital deficit of approximately $4.20 million. Although our net loss decreased materially and operating cash flow turned positive during FY 2026, our relatively low cash balance, accumulated deficit and working-capital deficit continue to create material liquidity uncertainty. These conditions raise substantial doubt about our ability to continue as a going concern unless we are able to generate sufficient cash from operations and obtain additional sources of liquidity as needed.

Management has evaluated our liquidity requirements for at least twelve months following the issuance date of our consolidated financial statements. Our liquidity plan during this period focuses principally on improving cash collections from customer contracts, controlling discretionary selling and administrative expenditures, maintaining and renewing existing bank credit facilities and obtaining replacement or additional credit where available, and accessing additional equity, debt or related-party financing if internally generated cash flows and available bank financing are insufficient to meet our operating and capital requirements.

During FY 2026, our operating entities established or maintained credit arrangements with several PRC commercial banks and obtained additional bank financing to support working capital and ongoing operations. Bank financing remains an important source of our short-term liquidity. Certain of these facilities depend on personal guarantees provided by our controlling shareholders, and our ability to renew or replace such facilities may therefore depend, in part, on the continued availability of those guarantees. Additional information regarding the outstanding balances, maturity profile, facility types, guarantees and other material terms of our bank facilities is provided below under "Bank Facilities and Borrowings."

Operating cash flow became positive during FY 2026, which improved our cash position relative to the prior fiscal year; however, positive operating cash flow in FY 2026 does not eliminate the liquidity risks arising from our working-capital deficit, debt-service requirements and relatively low cash balance. Our ability to meet our obligations over the next twelve months will depend on customer collections, future operating cash flows, the renewal or replacement of bank facilities, the continued availability of required guarantees, and our ability to obtain additional financing when necessary.

Although management intends to pursue the measures described above, there can be no assurance that these measures will be implemented successfully or that sufficient additional financing will be available when needed or on terms acceptable to us. Any equity financing may dilute the interests of existing shareholders, while additional debt financing may increase interest expense, debt-service obligations and other financing restrictions.

Liquidity Position

As of June 30, 2026, we had current assets of approximately $3.27 million and a working-capital deficit of approximately $4.20 million, resulting in a current ratio of approximately 0.44:1. As of June 30, 2025, we had current assets of approximately $2.92 million and a working-capital deficit of approximately $0.70 million, resulting in a current ratio of approximately 0.81:1.

The increase in our working-capital deficit primarily reflected increases in short-term bank borrowings and other current liabilities during FY 2026. As of June 30, 2026, outstanding bank borrowings were approximately $5.58 million. Certain of these borrowings are supported by personal guarantees provided by Ms. Zhixin Liu and Mr. Fu Liu. Because bank financing represents an important source of our short-term liquidity, our ability to renew or replace these facilities, including the continued availability of required guarantees, represents a material factor affecting our liquidity. For additional information regarding our outstanding bank facilities, maturities, guarantees and other material terms, see "Bank Facilities and Borrowings" below.

Historically, we have financed our operations through a combination of cash generated from operations, equity financing, support from principal shareholders and related parties, and bank borrowings. As our business model increasingly evolves toward technology-driven products, AI execution agents, continuing services and usage-based offerings, management intends to place greater emphasis on improving cash conversion from customer contracts, increasing recurring or continuing service revenue, and, where practicable, aligning significant capital investments with identifiable product-development, regulatory, customer or commercialization milestones.

We will continue to monitor our cash balance, working-capital position, accounts-receivable collections, debt maturities and anticipated capital requirements and will adjust the pace of operating and capital expenditures based on business-development progress.

The following table presents a summary of our cash flows for the years ended June 30, 2026, 2025 and 2024:

Cash Flows

Operating Activities

Net cash provided by operating activities was approximately $1.98 million for FY 2026, compared with net cash used in operating activities of approximately $2.37 million for fiscal 2025, representing an improvement of approximately $4.35 million.

Net cash provided by operating activities was $1,976,158 during the year ended June 30, 2026, compared to net cash used in operating activities of $2,374,680 during the year ended June 30, 2025, a decrease in cash outflow of $4,350,838.

The decrease in cash outflow was mainly due to (1) decreased cash outflow on accounts receivable by $1,142,482, (2) decreased cash outflow on inventory by $217,527, (3) decreased cash outflow on accounts payable by $371,471, (4) increased cash inflow on contract liability by $350,460, (5) decreased cash outflow on accrued expense and other payables by $352,994, (6) decreased cash outflow on value-added tax prepayment by $104,785, and (5) decreased net loss with non-cash adjustment by $3.7 million, which was partly offset by (1) decreased cash inflow on prepaid expenses and other current assets by $1.8 million, and 2) increased cash outflow on payment for operating lease liabilities by $35,207.

The improvement in operating cash flow primarily reflected the reduction in net loss and improved operating results after adjustment for non-cash items, together with favorable changes in accounts receivable, inventories and certain other working-capital items. These improvements were partially offset by cash outflows relating to prepaid expenses and other current assets and certain other operating liabilities.

The shift from negative to positive operating cash flow represented an important improvement in our liquidity during FY 2026 and indicates that the effects of our business-mix adjustment, improved gross-profit profile and expense management began to be reflected in cash generation. Positive operating cash flow, however, does not eliminate our working-capital deficit or our continuing funding requirements for technology, product development and commercialization, and we therefore expect to continue actively managing liquidity and maintaining additional sources of capital.

Net cash used in operating activities was $2,374,680 during the year ended June 30, 2025, compared to net cash used in operating activities of $6,398,883 during the year ended June 30, 2024, a decrease in cash outflow of $4,024,203.

The decrease in cash outflow was mainly due to (1) decreased cash outflow on prepaid expenses and other current assets by $1.69 million, (2) increased payment received from customers for contract liability by $573,635, and (3) decreased net loss by $6.30 million, with non-cash adjustments to net loss including gain on disposal of subsidiary by $833,546, depreciation and amortization by $644,784, loan forgiveness by shareholder by $105,356, and decreased stock compensation expense by $4,856,484, despite we had increased cash outflow on accounts payable by $1.25 million.

Investing Activities

Net cash used in investing activities was approximately $4.93 million for FY 2026, compared with approximately $4.09 million for fiscal 2025.

Investing cash outflows in FY 2026 principally included approximately $4.93 million used to acquire patents, software copyrights and other technology-related intangible assets, together with a limited amount of capital expenditures. The acquired technology assets principally relate to acoustic intelligence, NeuroVibe, biofeedback and brain-computer-interface-related technologies, as well as AI multimodal and AI-agent technologies.

These acquisitions were intended to supplement our internal R&D capabilities, expand our existing technology platform, shorten certain product-development and engineering cycles and strengthen our control over core technologies and intellectual property. These investments also increase the significance of future amortization and impairment assessments relating to intangible assets.

We expect to continue allocating investment resources among internal R&D, product engineering, acquisition of technology assets and necessary capital expenditures based on product-development and commercialization requirements.

Net cash used in investing activities totaled $4.09 million for the year ended June 30, 2025, which consisted of cash paid for the acquisition of office furniture and equipment of $8,129 and cash paid for acquisition of intangible assets by $4.08 million. Net cash used in investing activities totaled $167,957 for the year ended June 30, 2024, which consisted of cash paid for the acquisition of office furniture and equipment of $6,868, cash paid for acquisition of intangible assets by $161,054, and cash loss due to disposal of subsidiary of $35.

Financing Activities

Net cash provided by financing activities was approximately $3.04 million for FY 2026, compared with approximately $6.95 million for fiscal 2025.

Net cash provided by financing activities was $3,042,898 during the year ended June 30, 2026, which was from net proceeds from related parties of $44,333, and proceeds from loans of $5,997,130, which was partly offset by repayment of loan payables of $2,998,565. Net cash provided by financing activities was $6,945,370 during the year ended June 30, 2025, which was net proceeds from sale of our common stock through an equity financing of $5,939,133, and proceeds from loan payables of $2,374,350, which was partly offset by repayment of loan payables of $1,164,895, and repayment to related parties of $203,218.

Financing cash flows during FY 2026 were principally attributable to bank and other borrowings and funds provided by related parties, partially offset by repayments of borrowings and other financing cash outflows. Financing cash flows during fiscal 2025 principally included proceeds from issuances of common shares and borrowings.

As we continue to commercialize our acoustic-intelligence products, NeuroVibe, AI execution agents and other new businesses, external financing may continue to be an important source of capital to support working capital, technology investment and business expansion. We intend to evaluate bank financing, support from shareholders or related parties, and capital-market financing based on our actual funding requirements, cost of capital, potential shareholder dilution, debt burden and market conditions.

Net cash provided by financing activities was $6,945,370 during the year ended June 30, 2025, which was net proceeds from sale of our common stock through an equity financing of $5,939,133, and proceeds from loan payables of $2,374,350, which was partly offset by repayment of loan payables of $1,164,895, and repayment to related parties of $203,218. Net cash provided by financing activities was $6,839,577 during the year ended June 30, 2024, which was the net proceeds from due to related parties of $360,804 and net proceeds from sale of our common stock through an equity financing of $8,061,286, which was partly offset by repayment of loan payables of $1,582,513.

Bank Facilities and Borrowings

During FY 2026, our operating entities maintained or entered into credit and borrowing arrangements with several PRC commercial banks, including Bank of China, Bank of Beijing, China Construction Bank, Bank of Communications and Industrial and Commercial Bank of China. Certain facilities or borrowings were personally guaranteed by Ms. Zhixin Liu or Mr. Fu Liu.

Certain borrowings outstanding at the beginning of FY 2026 matured or were repaid during the period, while we also obtained a number of new bank credit facilities and borrowings to support working capital, ongoing operations and business development. Our outstanding bank borrowings as of June 30, 2026 increased compared with the prior year.

Our principal bank credit and borrowing arrangements included the following:

Management believes that maintaining credit relationships with multiple banks provides greater diversity in our sources of funding and a degree of support for working-capital requirements. However, available credit facilities do not guarantee continued availability or renewal of funding. Our future access to bank financing will depend on our financial condition, lender credit policies, guarantee arrangements and other applicable conditions.

Our access to bank financing depends substantially on personal guarantees provided by Ms. Zhixin Liu and Mr. Fu Liu. If such guarantees were no longer available, or if the guarantors' financial condition were to deteriorate in a manner that adversely affects lenders' willingness to rely on such guarantees, we may experience difficulties in renewing or obtaining bank facilities, reductions in available credit, increased financing costs, or a need to seek alternative sources of financing, any of which could adversely affect our liquidity.

Capital Requirements and Principal Uses of Funds

Our principal funding requirements include working capital, acoustic- and AI-related R&D, product engineering, acquisition and maintenance of technology and intellectual-property assets, product manufacturing and inventory, production readiness and regulatory compliance for NeuroVibe and other products, quality-system development, customer acquisition and channel expansion, and the continuing compliance and professional-service costs associated with being a public company.

The amount and timing of these funding requirements will depend on the pace of commercialization, customer orders and collections, supplier payment terms, R&D and engineering progress, regulatory requirements and market-development activities.

For acoustic-healthcare products, working-capital requirements are principally associated with manufacturing, raw materials and inventory preparation, channel payment terms and customer deliveries.

For NeuroVibe, funding requirements may include product engineering, manufacturing preparation, quality-system development, product testing, labeling and documentation, supply-chain preparation, regulatory compliance and market-channel development.

For AI execution agents and usage-based services, funding requirements are expected to consist primarily of model-access and cloud-computing costs, software engineering and platform development, system stability, customer implementation, business-system integration and continuing service delivery.

We intend to manage these expenditures in stages based on business maturity and commercialization progress and, where practicable, align significant technology, product and market investments with identifiable product-development, customer-order, commercial-delivery or regulatory milestones in order to improve capital efficiency.

Restrictions on Intra-Group Cash Transfers

As a British Virgin Islands holding company, our ability to use cash generated by our PRC operating entities is subject to applicable PRC laws and regulations relating to foreign exchange, dividend distributions, taxation, statutory reserves and cross-border transfers of funds.

Payments of dividends, service fees or other amounts from our PRC operating entities to offshore entities may be subject to applicable tax, foreign-exchange registration, bank-review and other regulatory requirements. Such requirements may affect the timing and availability of cash transfers within our group and the ability of the offshore holding company to access and use cash generated in China.

For additional information regarding intra-group cash transfers, PRC foreign-exchange regulation and restrictions on dividend distributions, see "Item 3.D. Risk Factors," the discussion regarding cash transfers and dividend distributions elsewhere in this annual report, and the notes to our consolidated financial statements.

Treasury Management Policies and Financial Instruments

We manage liquidity and capital centrally based on anticipated operating requirements, contractual payment obligations, debt maturities, expected investment requirements and available financing sources.

Our treasury-management activities primarily include maintaining cash balances necessary for operations, managing collections from customers and payments to suppliers, arranging and renewing bank credit facilities, controlling significant capital and technology investments, and evaluating equity, debt and other financing alternatives.

Our principal financial instruments include cash, accounts receivable, accounts payable, bank borrowings, other borrowings and balances with related parties.

As of the date of this annual report, we did not use derivative financial instruments for speculative trading purposes, nor did we maintain any material derivative hedging arrangements relating to interest rates, foreign-exchange rates or other market risks.

Off-Balance Sheet Arrangements

As of June 30, 2026, we did not have any known off-balance sheet arrangements that have, or are reasonably likely to have, a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

C. Research and Development, Patents and Licenses

R&D Strategy and Expenditures

Our R&D strategy is aligned with the two core businesses described under Item 4.B.

Over the past three fiscal years, our R&D strategy has gradually evolved from broader technology-capability development across multiple business areas toward a more concentrated focus on our two core technology platforms, Acoustic Intelligence and AI, and has further shifted from forward-looking and exploratory research toward product engineering, system integration, regulatory support and commercialization readiness.

Our R&D expenses were $ 359,342, $914,996 and $2,565,116 for fiscal 2024, fiscal 2025 and FY 2026, respectively. R&D expenses increased by approximately 180.3% in FY 2026 compared with fiscal 2025. The principal emphasis of R&D shifted toward engineering validation, system integration, product readiness and commercialization support. We continue to conduct foundational research where relevant, but management's near- to medium-term focus is increasingly on converting established acoustic and AI capabilities into stable, deployable and repeatable products and services.

In acoustic healthcare, R&D supports product iteration, acoustic-control performance, sensing, device integration and service integration. In acoustic medical applications, our R&D efforts have focused on NeuroVibe and related non-invasive biofeedback and brain-computer-interface technologies, acoustic and vibroacoustic stimulation, physiological and EEG-related signal acquisition and processing, signal analysis, closed-loop feedback, hardware-software integration, safety and product engineering. Following FDA establishment registration and device listing for NeuroVibe NV-02 and NV-03, our R&D and engineering activities increasingly include product specifications, manufacturing readiness, software and safety validation, labeling and quality-system support.

In industrial acoustics, our R&D activities during the reporting periods included ultrasound-assisted processing, vibration control, acoustic inspection and equipment-state recognition.

In AI, R&D is increasingly focused on AI-agent orchestration, multimodal perception, natural-language and voice interaction, model integration, task execution, system interfaces, data feedback, platform stability.

Patents, Software Copyrights and Technology Assets

Our intellectual-property portfolio includes patents, patent applications, software copyrights, proprietary software, algorithms, product designs and technical know-how covering acoustic intelligence, biofeedback and brain-computer-interface applications, multimodal data processing, AI agents and related systems. During FY 2026, we expanded this portfolio through both internal development and acquisitions of patents and software copyrights. The acquired assets are intended to complement our existing R&D, shorten development cycles, support product and service commercialization and reduce technology-ownership risk in areas where external rights are strategically useful.

A detailed schedule of material patents, patent applications and software copyrights, including FY 2026 additions, is included under Item 4.B. "Business Overview - Intellectual Property and Technology Assets." We do not repeat the full schedule here. From an operating and financial perspective, the increase in our intellectual-property portfolio has resulted in a material increase in intangible assets and therefore increases future amortization and impairment-assessment considerations.

D. Trend Information

The following trends and uncertainties are among those that management currently believes are most relevant to our operating results and prospects. These trends should be considered together with the risks described under Item 3.D. "Risk Factors."

Post-Fiscal-Year Commercialization and Order Trends

Since June 30, 2026, we have entered into or continued to perform certain product pre-sale arrangements relating to our acoustic and NeuroVibe products and certain AI execution-agent and Tokens-related service agreements and pre-orders. These arrangements represent current commercial activities but do not constitute guaranteed revenue. The amount and timing of revenue recognized from these arrangements will depend on actual customer usage, manufacturing and delivery, customer acceptance, settlement and satisfaction of applicable revenue-recognition criteria. Management has not identified any material change in product selling prices since the end of FY 2026 that, by itself, would be expected to alter our overall operating trend; however, model-access costs, cloud-computing costs, product-manufacturing costs, supply-chain costs and customer-acquisition costs remain material components of the cost structure of these businesses.

Business-Mix Changes

During FY 2026 and after fiscal year-end, we continued to reduce certain standardized, lower-margin digital-service activities while allocating resources toward customized digital solutions, acoustic products and AI-agent services. As a result, the relative contribution of these business categories to consolidated revenue and gross profit may continue to change. The financial effect of this business-mix change will depend on the rate at which newer products and services generate recognized revenue relative to the reduction in lower-margin activities.

NeuroVibe Manufacturing and Delivery Requirements

NeuroVibe's FDA establishment registration and device listing and the China pre-sale agreements are important processes, but future contribution will depend on manufacturing readiness, quality systems, customer acceptance, delivery, channel execution and continuing regulatory compliance. The timing and amount of recognized revenue from pre-sale arrangements remain uncertain.

During fiscal 2027, our NeuroVibe activities are expected to focus on manufacturing preparation, quality-system implementation, supply-chain readiness and initial delivery under existing pre-sale arrangements. The timing of customer deliveries will depend on manufacturing readiness, product testing, applicable regulatory and quality requirements, customer acceptance and contractual performance. Because we currently use third-party manufacturing arrangements rather than significant owned manufacturing capacity, the principal funding requirements associated with NeuroVibe are expected to consist of working capital for components and inventory, manufacturing preparation, testing, quality-system implementation, regulatory compliance and customer delivery, rather than material fixed-asset manufacturing expenditures. We currently do not have a material committed capital expenditure specifically for NeuroVibe manufacturing.

Growth of AI-Agent and Usage-Based Service Models

Our AI Multimodal Digitalization and AI-Agent Business is evolving from project-based multimodal digital services toward a mix that includes AI agents, SaaS and usage-based execution services. At the same time, gross margins will depend on model-call costs, cloud and third-party platform costs, customer-acquisition costs, service intensity and our ability to standardize delivery. Estimated service-usage ranges under pre-orders are not guaranteed and may vary significantly from actual usage.

Intellectual-Property Acquisition and Impairment Exposure

Our intangible assets increased materially during FY 2026 as a result of acquired patents, software copyrights and related technology assets. These acquisitions may accelerate technology development and support commercialization, but they also increase amortization expense and the potential impact of impairment if expected commercial applications do not develop as planned. Management will continue to assess such assets in accordance with U.S. GAAP and the accounting policies described in Item 5.E and the notes to the consolidated financial statements.

Based on the carrying amounts and estimated useful lives of our intangible assets as of June 30, 2026, expected amortization expense for fiscal 2027 is approximately $3.01 million, followed by approximately $2.08 million, $1.56 million, $1.56 million and $1.44 million in the subsequent four fiscal years, respectively.

Liquidity, Bank-Facility Renewals and Additional Financing Requirements

Our liquidity and access to capital remain material factors affecting our operations. Although operating activities generated positive cash flow during FY 2026, we had a working-capital deficit of approximately $4.20 million as of June 30, 2026. Our ability to meet working-capital, debt-service, product-commercialization and R&D requirements during FY 2027 will depend on customer collections, operating cash flows, renewal or replacement of bank facilities and access to additional financing.

A number of our bank facilities mature or become subject to renewal during the twelve months following June 30, 2026. Our ability to maintain these sources of liquidity depends on renewal or replacement of such facilities and, for certain facilities, the continued availability of personal guarantees. See "Bank Facilities and Borrowings" above for the maturity dates, guarantee arrangements and current status of our material facilities.

Based on our current liquidity position, working-capital requirements and planned commercialization activities, management expects that additional external financing may be necessary during FY 2027. Such financing may include bank credit, debt, equity or related-party financing. We are not currently able to reasonably estimate the amount or timing of such financing because it will depend principally on customer collections, operating cash flows, renewal of existing bank facilities, working-capital requirements and the pace of product commercialization.

E. Critical Accounting Estimates

Overview

The preparation of our consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities. We base our estimates on historical experience, current conditions and other assumptions that we believe are reasonable under the circumstances. Actual results may differ from these estimates. The accounting estimates discussed below are those that management believes involve a significant degree of judgment or uncertainty and are most relevant to understanding our financial condition and results.

Accounts Receivable and Credit Losses

We apply ASC 326, Financial Instruments - Credit Losses, and estimate expected credit losses on accounts receivable using a combination of aging analysis and roll-rate methodology. In determining any required allowance, management considers historical loss experience, current receivable aging, customer payment patterns, customer financial condition, disputed balances, current payment terms and reasonable and supportable forward-looking information. As of June 30, 2026 and 2025, the Company recorded no allowance for credit losses. Changes in customer payment behavior, credit quality or economic conditions could result in a different allowance in future periods.

Revenue Recognition

Revenue recognition requires judgment in identifying performance obligations and determining the timing of revenue recognition for arrangements involving multiple products or services. Management evaluates contract terms, delivery, customer acceptance and other performance conditions in determining when the applicable ASC 606 criteria have been satisfied.

Intangible Assets, Useful Lives and Impairment

Our intangible assets include patents, software copyrights and other technology assets, including assets acquired during FY 2026. We determine useful lives based on the expected period over which the assets will contribute to cash flows and amortize finite-lived intangible assets accordingly. We evaluate long-lived assets for impairment when events or changes in circumstances indicate that their carrying amounts may not be recoverable. Significant judgment may be required to assess expected future cash flows, product commercialization, customer demand, regulatory progress, technology obsolescence and the remaining useful lives of assets.

The material increase in intangible assets during FY 2026 increases the sensitivity of our financial statements to these judgments. For technology assets associated with acoustic medical, AI-agent or other emerging applications, actual commercialization timing may differ from initial expectations. If forecast cash flows decline, technology becomes obsolete, regulatory or market conditions change, or commercial arrangements do not develop as expected, an impairment charge could be required.

Income Taxes and Valuation Allowances

As of June 30, 2026, the Company had gross deferred tax assets of approximately $4.57 million and recorded a full valuation allowance, resulting in no net deferred tax asset being recognized. In assessing the valuation allowance, management considers available positive and negative evidence, including historical losses, projected future taxable income, scheduled reversals of temporary differences and available tax-planning strategies. Because significant uncertainty remains regarding the future realization of these deferred tax assets, management concluded that a full valuation allowance was appropriate. Changes in future taxable income or other relevant evidence could affect the amount of the valuation allowance.