Virtuix Holdings Inc.

Note 1. Nature of Operations

Virtuix Holdings Inc. (“Virtuix Holdings” or “VHI” or the “Company”) was formed on December 20, 2013 as a Delaware Corporation. The Company has a wholly-owned subsidiary, Virtuix Inc., a Delaware corporation formed on April 15, 2013. Virtuix Inc. develops AI-driven, full-body simulation systems, originally the Omni Pro, the first omni-directional treadmill that lets players walk and run freely in 360 degrees inside video games and other virtual worlds. In February 2019, the Company began to offer Omni Arena, a four-player esports attraction that includes four Omni Pro motion platforms. In January 2023, the Company started shipping beta units of Omni One, the first Omni entertainment system designed for the home. Virtuix Manufacturing, Limited (“VML”), a wholly-owned subsidiary, is a Hong Kong corporation that was formed to conduct manufacturing operations and transact USD-denominated business with suppliers. Virtuix Manufacturing (Zhuhai) Co., Ltd. (“VML_ZH”) was formed on July 28, 2016, and is a wholly-owned subsidiary of VML. VML_ZH is a Wholly Foreign-Owned Enterprise (“WFOE”) registered in Zhuhai, Guangdong, China that was formed to sell products to Chinese customers and transact CNY-denominated business with Chinese suppliers. Virtuix Manufacturing Taiwan Ltd. (“VMT”) was formed on January 17, 2023, and is a wholly-owned foreign subsidiary of VHI. VMT is a Taiwan corporation that was formed to employ staff in Taiwan and conduct manufacturing operations. Virtuix Arabia LLC (“VA”) was formed in June 2024, and is a 57.5% owned foreign subsidiary of VHI. VA has not yet begun operations.

In July 2016, the Company formed a joint venture with Hero Entertainment, a Chinese game publisher and esports operator, to develop active virtual reality content and product bundles for the Chinese and U.S. markets. The joint venture, named Heroix VR (Shanghai) Co., Ltd. (the “Joint Venture” or “Heroix”), was a Sino-foreign equity joint venture company established under the laws of the People’s Republic of China and registered in Shanghai. The Company held a 49% ownership interest and accounted for its investment using the equity method because it did not control the Joint Venture. Heroix commenced operations in October 2016.

To service the Chinese market more efficiently, Hero Entertainment and the Company transferred the China sales channel to the Company’s China subsidiary and initiated the process to dissolve Heroix during fiscal year 2026. During the quarter ended June 30, 2026, the Company received a Certification of Dissolution and Tax Clearance from the People’s Republic of China confirming that Heroix had been legally dissolved, liquidated, and deregistered, with its legal personality terminated effective September 29, 2025. Based on this information, the Company concluded that it no longer possessed an ownership interest in Heroix and, accordingly, derecognized its remaining equity method investment. The Company recognized a non-cash loss on derecognition of approximately $40,619 during the quarter ended June 30, 2026.

Note 2. Summary of Significant Accounting Policies

Revision of Previously Issued Financial Statements

In connection with the preparation and review of the Company’s financial statements for the quarter ended June 30, 2026, management, with the assistance of its accounting advisers, performed additional analysis of the accounting treatment of certain complex financing arrangements with Streeterville Capital, LLC. As a result of that analysis, management identified errors related principally to the accounting for embedded features in certain debt and other financing instruments under ASC 815, including the initial recognition and subsequent measurement of embedded derivative liabilities and the related accounting for the host instruments, the resulting allocation among the related debt host instruments, embedded derivatives and detachable warrants, and the related debt-discount amortization.

Management evaluated the errors, individually and in the aggregate, in accordance with ASC 250, Accounting Changes and Error Corrections, and SEC Staff Accounting Bulletins No. 99, Materiality, and No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements. Management concluded that the errors were not material to the Company’s previously issued consolidated financial statements as of and for the year ended March 31, 2026. Accordingly, amendment of the previously issued financial statements was not required.

However, the Company has revised the previously reported March 31, 2026 financial information presented in this Quarterly Report to correct the errors. The revisions resulted principally in the recognition of embedded derivative liabilities, corresponding adjustments to the carrying amounts of the related debt instruments and debt discounts, adjustments to amounts recorded in additional paid-in capital related to detachable warrants, and the recognition of related interest expense and changes in fair value in the periods in which such amounts should have been recognized.

The following table presents the effect of the revisions on the Company’s previously reported consolidated balance sheet as of March 31, 2026:

The revisions increased the Company’s net loss for the three months ended September 30, 2025 by $12,493, from $1,854,203 to $1,866,696, and increased the Company’s net loss for the three months ended December 31, 2025 by $81,699, from $2,730,944 to $2,812,643. On a cumulative basis, the revisions increased net loss for the six months ended September 30, 2025 by $12,493, from $4,161,358 to $4,173,851, and increased net loss for the nine months ended December 31, 2025 by $94,192, from $6,892,302 to $6,986,494. The corresponding net increases in total liabilities were $211,101 as of September 30, 2025 and $398,061 as of December 31, 2025, while the corresponding increases in accumulated deficit were $12,493 and $94,192, respectively, with the remaining effects reflected principally in additional paid-in capital. The revisions increased the Company’s net loss for the year ended March 31, 2026 by $54,592, from $16,799,253 to $16,853,845, and basic and diluted net loss per share remained approximately $0.73. The revisions did not affect the Company’s loss from operations and were noncash, with no effect on net cash used in operating, investing or financing activities or on the Company’s ending cash balance.

Basis of Presentation and Principles of Consolidation

The accompanying financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America (“U.S. GAAP”). Any reference in these notes to applicable guidance is meant to refer to U.S. GAAP as found in the Accounting Standards Codification (“ASC”) and the Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”). Significant intercompany accounts and transactions have been eliminated upon consolidation.

The Company’s fiscal year ends March 31.

The accompanying interim condensed consolidated financial statements are unaudited and have been prepared on substantially the same basis as the Company’s annual consolidated financial statements for the fiscal year ended March 31, 2026. In the opinion of the Company’s management, these interim condensed consolidated financial statements reflect all adjustments considered necessary for a fair statement of the Company’s financial position, results of operations and cash flows for the periods presented. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of expenses during the reporting periods. Actual results could differ from these estimates.

The March 31, 2026 year-end condensed consolidated balance sheet data in the accompanying interim condensed consolidated financial statements was derived from audited consolidated financial statements and has been revised to correct immaterial errors as described under “Revision of Previously Issued Financial Statements” above. These condensed consolidated financial statements and notes do not include all disclosures required by GAAP and should be read in conjunction with the Company’s audited consolidated financial statements as of and for the year ended March 31, 2026 and the notes thereto included in the Company’s Annual Report on Form 10-K, dated June 25, 2026, on file with the Securities and Exchange Commission.

The results of operations and cash flows for the interim periods included in these condensed consolidated financial statements are not necessarily indicative of the results to be expected for any future period or the entire fiscal year.

Management’s Estimates

Preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions affecting reported amounts of assets, liabilities, revenues, and expenses, as well as disclosures of contingent items. Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. Actual results could differ from these estimates.

Significant estimates and judgments include the valuation of embedded derivative liabilities and financial instruments measured at fair value, including assumptions regarding expected volatility, discount rates, expected term, probabilities and timing of contractual settlement features, and other market and instrument-specific inputs.

Going Concern

The consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.

The Company has not generated profits since inception and has incurred net losses of $7,170,566 and $2,307,155 for the three months ended June 30, 2026 and 2025, respectively, and has accumulated deficits of $86,517,001 as of June 30, 2026. These factors, together with limited working capital and liquid assets relative to anticipated operating cash flow needs, raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date these financial statements are available to be issued.

Management has taken several actions to support the Company’s ability to continue as a going concern, including:

No assurance can be given that the Company will be successful in these efforts. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

Revenue Recognition

The Company recognizes revenue in accordance with Accounting Standards Codification (“ASC”) 606,Revenue from Contracts with Customers, which provides a five-step model to determine when and how revenue is recognized. Under this model, revenue is recognized in an amount that reflects the consideration the Company expects to be entitled to in exchange for transferring control of goods or services to a customer.

The Company applies the following five steps to all revenue-generating arrangements:

The Company’s contracts typically include product sales, installation services, support programs, or the sale of digital playtime credits. Each arrangement is evaluated to determine whether it contains one or more performance obligations. The majority of contracts involve a single performance obligation to transfer or install physical goods. Revenue is recognized when control transfers to the customer, which occurs as follows:

Contracts with multiple performance obligations are allocated based on relative standalone selling prices. Payment terms are generally fixed and do not include significant financing components.

Amounts received in advance of satisfying performance obligations are recorded as contract liabilities and recognized when the related obligation is fulfilled.

The Company’s contracts generally do not include variable consideration, material rights, or warranties that give rise to separate performance obligations. The Company has also concluded it acts as the principal in the sale of digital content, as it controls the content before transfer to the customer.

Cash and Cash Equivalents

The Company considers deposits that can be redeemed on demand and investments with original maturities of three months or less, when purchased, to be cash equivalents. As of June 30, 2026 and March 31, 2026, the Company’s cash and cash equivalents were deposited primarily in five financial institutions. Deposits with these institutions may exceed federally insured limits. Management believes that the financial institutions holding the Company’s cash are financially sound and, accordingly, the Company does not believe it is exposed to any significant credit risk related to its cash and cash equivalents.

Accounts Receivable

Trade receivables are generally due within thirty days. Receivables are presented net of an allowance for credit losses, which is estimated using the current expected credit loss model and is based on historical loss experience, current economic conditions, and customers’ ability to pay. The Company evaluates the collectability of trade receivables and records estimated credit losses based on expected losses over the contractual life of the receivables.

Inventory

Inventory is stated at lower of cost or net realizable value. Cost is computed using weighted average cost at one subsidiary and specific identification cost at the remaining subsidiaries.

Net realizable value is estimated based on projected demand; slow-moving products are impaired accordingly.

Property and Equipment

Property and equipment are recorded at cost, less accumulated depreciation. Depreciation is straight-line over the following estimated useful lives:

Fair Value Measurements

The Company determines the fair value of its financial instruments in accordance with ASC 820,Fair Value Measurement. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 establishes a three-level fair value hierarchy that prioritizes the inputs used in measuring fair value:

Level 1 — Quoted prices in active markets for identical assets or liabilities.

Level 2 — Observable inputs other than Level 1 quoted prices, including quoted prices for similar assets or liabilities in active markets or other inputs that are observable or can be corroborated by observable market data.

Level 3 — Unobservable inputs that reflect management’s assumptions regarding the assumptions market participants would use in pricing the asset or liability.

The classification of a fair value measurement within the hierarchy is based on the lowest-level input that is significant to the measurement. The Company’s derivative liabilities and certain debt instruments measured at fair value are classified within Level 3 because their valuations incorporate significant unobservable inputs. Changes in fair value are recognized in earnings, except as otherwise required by U.S. GAAP.

The carrying amounts of the Company’s other financial instruments, including cash, accounts receivable, accounts payable and accrued expenses, approximate fair value primarily due to their short-term nature.

Financial liabilities measured at fair value on a recurring basis were as follows:

The following table presents a reconciliation of the Company’s Level 3 financial liabilities measured at fair value on a recurring basis for the three months ended June 30, 2026:

Valuation Techniques and Significant Unobservable Inputs

The Company used valuation techniques that were considered appropriate based on the contractual terms and economic characteristics of the respective instruments. The embedded derivative liabilities associated with the pre-paid purchase arrangement and secured convertible promissory notes were valued using valuation techniques that incorporated simulated equity-price paths, probability-weighted outcomes and the contractual settlement provisions of the instruments. The second pre-paid purchase arrangement was valued as a single financial liability using a Monte Carlo simulation that incorporated the instrument’s share-settlement rights, market-price provisions, floor-price cash-election feature, prepayment rights and other contingent settlement events.

Significant unobservable inputs used in the Level 3 measurements included expected equity volatility, discount rates, the expected timing of share settlements, and management’s estimates of the probability and timing of prepayment, default, change-of-control and other contractual settlement events. Observable inputs included the Company’s common stock price and market interest rates at the applicable measurement dates.

There were no transfers into or out of Level 3 during the periods presented.

The Company’s Level 3 fair value measurements are sensitive to changes in significant unobservable inputs. In general, changes in expected volatility, discount rates, expected settlement timing or the probability of contingent settlement events could result in a higher or lower fair value measurement. Because certain contractual features interact with one another, changes in one assumption may affect the impact of other assumptions, and the effect of changes in individual inputs may therefore not be independent.

Derivative Liabilities

Certain of the Company’s financing arrangements contain embedded features that require bifurcation and separate accounting as derivative liabilities under ASC 815,Derivatives and Hedging. The derivative liabilities are initially and subsequently measured at fair value, with changes in fair value recognized in earnings. Amounts initially recognized as derivative liabilities may result in a discount to the related debt host, which is subsequently amortized to interest expense.

Fair Value Option

ASC 825,Financial Instruments, permits an entity to elect the fair value option for certain eligible financial instruments on an instrument-by-instrument basis at specified election dates, including upon initial recognition of an eligible instrument. Once elected, the fair value option is generally irrevocable. Financial instruments for which the fair value option is elected are measured at fair value, with changes in fair value recognized in earnings, except for changes in the fair value of financial liabilities attributable to instrument-specific credit risk, which are recognized in other comprehensive income.

On May 22, 2026, the Company elected the fair value option for its second pre-paid purchase arrangement with Streeterville Capital, LLC (the “Second Pre-Paid Purchase Arrangement” or “PPP #2”) upon its initial recognition. PPP #2 is therefore measured in its entirety at fair value rather than separately accounting for embedded features. Contractual interest expense is recognized separately in interest expense, and changes in the fair value of PPP #2, other than changes attributable to instrument-specific credit risk, are recognized in other income (expense).

During the three months ended June 30, 2026, the Company determined that no portion of the change in the fair value of PPP #2 was attributable to changes in instrument-specific credit risk. Accordingly, no amount related to PPP #2 was recognized in other comprehensive income during the period.

Intangibles

Intangible assets include software, trademarks, customer lists, and a website. Amortization is straight-line over the following estimated useful lives:

Software and Website Development Costs

The Company accounts for software development costs in accordance with several accounting pronouncements, including Topic 730,Research and Development, Topic 985-20,Costs of Computer Software to be Sold, Leased, or Marketed, and Topic 330-10,Inventory. Costs incurred during the period of planning and design, prior to the period determining technological feasibility, for all software developed for internal and external use, are charged to operations in the period incurred as research and development costs. Additionally, costs incurred after determination of readiness for market are expensed as research and development.

The Company capitalizes certain costs in the development of its proprietary software (computer software to be sold, leased, or licensed) for the period after technological feasibility has been determined and prior to marketing and initial sales. Once technological feasibility is reached, and the software has been released for sale, such costs are capitalized and amortized to cost of revenue over the estimated lives of the products. These capitalized costs are amortized over their estimated useful lives and reviewed for impairment in accordance with Topic 330 when indicators of impairment exist.

Website development costs are accounted for separately under Topic 350-50,Website Development Costs.

Deferred Revenue

Deferred revenue represents cash received from customers for which the related revenue has not yet been earned. Deferred revenue primarily consists of (i) orders of Omni One units and extended warranties, (ii) unfilled orders of Omni Pro systems, (iii) amounts billed but not yet recognized for Omni Arena installations, (iv) unearned subscription revenue related to Omni Online, (v) unredeemed Omniverse game credits, and (vi) unearned subscription revenue related to Omni Care.

The following table summarizes deferred revenue balances:

Revenue recognized during the three months ended June 30, 2026 and 2025, that was included in deferred revenue at the beginning of the respective periods, was $492,690 and $883,470, respectively. Refunds issued to customers during the three months ended June 30, 2026 and 2025, which reduced deferred revenue, were $200 and $2,200, respectively.

Payments received from customers during the three months ended June 30, 2026 and 2025, that increased deferred revenue were $466,114 and $545,764, respectively.

Gift Card Liability

During the fiscal year ended March 31, 2026, the Company converted outstanding customer Omni One preorder deposits to gift cards and reclassed them from deferred revenue. The total amount reclassed from deferred revenue was $226,445. Additionally, the Company issued store credits (subsequently converted to gift cards) to certain investors as an incentive for purchasing shares. The total amount issued in connection with equity transactions was $214,906. For the three months ended June 30, 2026, there were no additional gift cards issued. These gift cards are redeemable for Company products and represent an obligation to deliver goods in the future. They have been recorded as a gift card liability, included in current liabilities on the consolidated balance sheet as of June 30, 2026. Total gift card liabilities were $445,744 as of June 30, 2026, and $446,252 as of March 31, 2026.

Consistent with ASC 606, the gift card liability will be recognized as revenue when the cards are redeemed.

Advertising Costs

Advertising costs are expensed as incurred, and are included in selling expenses in the accompanying consolidated statements of operations. Total advertising expense for the three months ended June 30, 2026 and 2025, was $286,182 and $827,530, respectively.

Federal Income Taxes

No uncertain tax positions were identified. Tax-related interest and penalties, if any, are included in income tax expense. The U.S. federal tax returns are subject to examination by the Internal Revenue Service, generally for three years after they are filed. State tax returns are subject to examination generally for five years after they are filed.

Net Loss Per Share

Basic and diluted net loss per share is computed by dividing net loss by weighted-average shares outstanding. Potentially dilutive securities that were excluded from the computation of diluted net loss per share because their effect would have been anti-dilutive include stock options, restricted stock units, and warrants. The total number of potentially dilutive shares excluded from the computation of diluted net loss per share were as follows:

Major Customers Concentrations

For the three months ended June 30, 2026, one customer accounted for 17% of the Company’s revenue. Revenue from this customer was $132,158 for the three months ended June 30, 2026, and accounts receivable due from the customer at June 30, 2026, was $285,520. For the three months ended June 30, 2025, no individual customer accounted for 10% or more of the Company’s revenue or accounts receivable.

Recent Accounting Pronouncements

On December 14, 2023, the FASB issued ASU 2023-09,Income Taxes (Topic 740) — Improvements to Income Tax Disclosures, which enhances transparency regarding income tax disclosures, primarily through additional information regarding the income tax rate reconciliation and income taxes paid by jurisdiction. The Company adopted ASU 2023-09 effective April 1, 2026. The amendments are applied prospectively, with retrospective application permitted. Because the amendments relate solely to disclosures, adoption did not have a material impact on the Company’s consolidated financial position, results of operations or cash flows. The Company is currently evaluating the impact of the ASU on its annual income tax disclosures, which will first be reflected in the Company’s financial statements for the fiscal year ending March 31, 2027.

In March 2024, the FASB issued ASU 2024-03,Income Statement—Reporting Comprehensive Income (Subtopic 220-40): Expense Disaggregation Disclosures. The ASU requires public business entities to disclose in a tabular format significant expense categories that are included in each relevant income statement line item. The standard is effective for fiscal years beginning after December 15, 2026, including interim periods within those years. Early adoption is permitted. The Company is currently evaluating the impact that this standard may have on its consolidated financial statements and related disclosures.

Foreign Currency Remeasurements

The Company’s non-U.S. subsidiaries, VML and its wholly-owned subsidiary VML_ZH, along with VMT, operate using the U.S. dollar as the functional currency. The effect of foreign currency exchange rate fluctuations on consolidated balance sheet accounts were not material for the three months ended June 30, 2026 and 2025.

Note 3. Receivables

Receivables, net of allowance for credit losses consisted of the following at:

Changes in the allowance for credit losses account for the three months ended June 30, 2026, and the year ended March 31, 2026, are as follows:

Note 4. Prepaids and Other Current Assets

Prepaids and other current assets consisted of the following at:

Note 5. Inventory

Inventory consisted of the following at:

Note 6. Property and Equipment

Property and equipment, net include the following at:

Depreciation expense for the three months ended June 30, 2026 and 2025, was $31,274 and $43,460, respectively.

Note 7. Intangibles

Intangibles, net include the following at:

Amortization expense for the three months ended June 30, 2026 and 2025, was $111,679 and $115,317, respectively.

Note 8. Notes Payable

Convertible Notes

Effective August 25, 2025, the Company issued a secured convertible promissory note to Streeterville Capital, LLC in the amount of $2,220,000. The note was convertible into shares of Class A common stock calculated as the converting balance divided by 85% of the Nasdaq valuation price of $8.75 per share, which was the reference price established in connection with the Company’s direct listing. The note provided for payment of principal and accrued interest at maturity, nine months after the purchase price date. The note bore interest at a fixed rate of 6% and was secured by all assets of the Company. The note included an original issue discount of $200,000 plus additional closing costs of $20,000, which were being amortized over the contractual term of the note.

The Company granted warrants associated with this note to acquire shares of Class A common stock. In accordance with ASC 470-20, the Company allocated the proceeds between the note and the warrants using the relative fair value method. After giving effect to the bifurcation of the embedded derivative described below, the amount allocated to the warrants was revised to $1,229,045, which was recorded in equity as additional paid-in capital (“APIC”) – warrants, with a corresponding discount on the note payable that was being amortized over the contractual term of the note. Effective February 9, 2026, as a result of an amendment to the warrants, the Company recognized incremental fair value of $143,144 in Other Income (Expense). See Note 12 for additional information regarding the warrant exercises and related equity activity.

On May 22, 2026, the note was exchanged pursuant to Prepaid Purchase Agreement #2 (“PPP #2”), and the note was extinguished. Accordingly, there was no outstanding balance under the note at June 30, 2026. As revised, the carrying value of the note at March 31, 2026 was approximately $1,871,195 (principal of $2,220,000, less unamortized deferred loan costs of $4,000 and unamortized discount of approximately $344,805). Discount amortization and amortization of deferred loan costs included in interest expense was approximately $329,427 and $0 for the three months ended June 30, 2026 and 2025, respectively. Interest expense on the note was $18,870 and $0 for the three months ended June 30, 2026 and 2025, respectively. See “Embedded Derivative Liabilities” and “Extinguishment of Convertible Promissory Notes” below for additional information.

Effective October 30, 2025, the Company issued a second secured convertible promissory note to Streeterville Capital, LLC in the amount of $560,000. The note was convertible into shares of Class A common stock calculated as the converting balance divided by 85% of the Nasdaq valuation price of $8.75 per share, which was the reference price established in connection with the Company’s direct listing. The note provided for payment of principal and accrued interest at maturity, nine months after the purchase price date. The note bore interest at a fixed rate of 6% and was secured by all assets of the Company. The note included an original issue discount of $50,000 plus additional closing costs of $10,000, which were being amortized over the contractual term of the note.

The Company granted warrants associated with the second note to acquire shares of Class A common stock. In accordance with ASC 470-20, the Company allocated the proceeds between the note and the warrants using the relative fair value method. After giving effect to the bifurcation of the embedded derivative described below, the amount allocated to the warrants was revised to $312,436, which was recorded in equity as additional paid-in capital (“APIC”) – warrants, with a corresponding discount on the note payable that was being amortized over the contractual term of the note. Effective February 9 and March 11, 2026, as a result of amendments to the warrants, the Company recognized aggregate incremental fair value of $112,949 in Other Income (Expense). Effective June 1, 2026 and June 29, 2026, the Company entered into additional amendments to the warrants reducing the exercise price to $4.00 per warrant share and $3.00 per warrant share, respectively, and recognized additional aggregate incremental fair value of $56,000 in Other Income (Expense). As of June 30, 2026, all 114,286 debt warrants granted with the October 30, 2025 secured convertible promissory note were outstanding.

On May 22, 2026, the second note was exchanged pursuant to PPP #2, and the note was extinguished. Accordingly, there was no outstanding balance under the note at June 30, 2026. As revised, the carrying value of the note at March 31, 2026 was approximately $363,855 (principal of $560,000 less unamortized deferred loan costs of $4,407 and unamortized discount of approximately $191,738). Discount amortization and amortization of deferred loan costs included in interest expense was approximately $84,061 and $0 for the three months ended June 30, 2026 and 2025, respectively. Interest expense on the note was $4,760 and $0 for the three months ended June 30, 2026 and 2025, respectively. See “Embedded Derivative Liabilities” and “Extinguishment of Convertible Promissory Notes” below for additional information.

Effective December 19, 2025, the Company issued a third secured convertible promissory note to Streeterville Capital, LLC in the amount of $560,000. The note was convertible into shares of Class A common stock calculated as the converting balance divided by 85% of the Nasdaq valuation price of $8.75 per share, which was the reference price established in connection with the Company’s direct listing. The note provided for payment of principal and accrued interest at maturity, nine months after the purchase price date. The note bore interest at a fixed rate of 6% and was secured by all assets of the Company. The note included an original issue discount of $50,000 plus additional closing costs of $10,000, which were being amortized over the contractual term of the note.

The Company granted warrants associated with the third note to acquire shares of Class A common stock. In accordance with ASC 470-20, the Company allocated the proceeds between the note and the warrants using the relative fair value method. After giving effect to the bifurcation of the embedded derivative described below, the amount allocated to the warrants was revised to $300,251, which was recorded in equity as additional paid-in capital (“APIC”) – warrants, with a corresponding discount on the note payable that was being amortized over the contractual term of the note. Effective February 9 and March 11, 2026, as a result of amendments to the warrants, the Company recognized aggregate incremental fair value of $143,772 in Other Income (Expense). Effective June 1, 2026 and June 29, 2026, the Company entered into additional amendments to the warrants reducing the exercise price to $4.00 per warrant share and $3.00 per warrant share, respectively, and recognized additional aggregate incremental fair value of $56,000 in Other Income (Expense). As of June 30, 2026, all 114,286 debt warrants granted with the December 19, 2025 secured convertible promissory note were outstanding.

On May 22, 2026, the third note was exchanged pursuant to PPP #2, and the note was extinguished. Accordingly, there was no outstanding balance under the note at June 30, 2026. As revised, the carrying value of the note at March 31, 2026 was approximately $278,844 (principal of $560,000 less unamortized deferred loan costs of $6,222 and unamortized discount of approximately $274,934). Discount amortization and amortization of deferred loan costs included in interest expense was approximately $85,351 and $0 for the three months ended June 30, 2026 and 2025, respectively. Interest expense on the note was $4,760 and $0 for the three months ended June 30, 2026 and 2025, respectively. See “Embedded Derivative Liabilities” and “Extinguishment of Convertible Promissory Notes” below for additional information.

Embedded Derivative Liabilities

The Company determined that certain embedded features contained in the three secured convertible promissory notes required bifurcation and separate accounting as derivative liabilities under ASC 815. The derivative liabilities were initially measured at fair value, with corresponding amounts recorded as additional debt discounts, and were subsequently remeasured at fair value each period, with changes recognized through earnings.

The aggregate initial fair value of the embedded derivatives associated with the three notes was $459,188. As of March 31, 2026, the aggregate fair value of the derivative liabilities was $460,040, and the aggregate remaining unamortized derivative-related debt discount was $147,994. During the period from April 1, 2026 through the May 22, 2026 extinguishment, the Company recognized approximately $86,736 of additional debt discount amortization associated with these embedded derivatives. See Note 2, “Fair Value Measurements,” for additional information regarding the Company’s fair value measurements and related Level 3 disclosures.

Immediately prior to the May 22, 2026 exchange, the aggregate derivative liabilities were $460,040. Upon extinguishment of the three notes, the derivative liabilities and the remaining derivative-related debt discount were derecognized together with the related debt host instruments. See Note 2, “Revision of Previously Issued Financial Statements,” for additional information regarding the correction of the Company’s historical accounting for these instruments.

Extinguishment of Convertible Promissory Notes

On May 22, 2026, the Company entered into the PPP #2 with Streeterville Capital, LLC pursuant to the automatic exchange provisions of the existing secured convertible promissory notes. In connection with the transaction, the August 25, 2025, October 30, 2025, and December 19, 2025 secured convertible promissory notes, with an aggregate outstanding principal balance of $3,340,000 and accrued interest of $131,923, were exchanged in full for PPP #2, which had an original principal amount of $3,471,923. Upon completion of the exchange, the three secured convertible promissory notes had no remaining outstanding balance, and all liens securing the notes were released. PPP #2 is an unsecured obligation of the Company.

The Company accounted for the exchange as an extinguishment of debt under ASC 470-50. Immediately prior to the exchange, the aggregate carrying amount of the liabilities extinguished, including the debt host instruments and related embedded derivative liabilities, were approximately $3,604,696. The Company elected the fair value option for PPP #2 upon its initial recognition and recorded PPP #2 at its May 22, 2026 fair value of $3,897,000. As a result, the Company recognized a loss on extinguishment of approximately $292,304 during the three months ended June 30, 2026.

Prepaid Purchase Agreement

Effective August 25, 2025, the Company entered into a Securities Purchase Agreement with Streeterville Capital, LLC pursuant to which Streeterville Capital, LLC committed to provide up to $50.0 million through one or more prepaid equity advances (each, an “Advance”). Following the Company’s direct listing on January 27, 2026, the Company entered into a Prepaid Purchase Agreement (the “PPP #1”) with Streeterville Capital, LLC and received an initial advance with an original principal amount of $8,640,000. Subsequent advances may be requested by the Company, subject to specified conditions, including minimum market capitalization, trading volume, Nasdaq compliance, and other customary conditions.

The Advances do not have a stated maturity date and bear interest at a rate of 6% per annum. The Advances are convertible into shares of the Company’s Class A common stock at conversion prices determined in accordance with the terms of the PPP #1. Under certain circumstances, including specified trigger events, the conversion price may be adjusted based on the market price of the Company’s common stock, subject to a minimum floor price of $2.00 per share. The PPP #1 includes an original issue discount of $640,000, that is amortized over 12 months.

The Company granted warrants associated with this PPP #1 to acquire shares of Class A common stock. In accordance with ASC 470-20, the Company allocated the proceeds between the note and the warrants using the relative fair value method. After giving effect to the bifurcation of the embedded derivative described below, the amount allocated to the warrants was revised to $4,017,499, which was recorded in equity as additional paid-in capital (“APIC”) – warrants, with a corresponding discount on the note payable that is amortized over the life of the note. Effective February 9, 2026 and March 11, 2026, as a result of amendments to the warrants, the Company recognized aggregate incremental fair value of $2,294,857 in Other Income (Expense). Effective June 1, 2026 and June 29, 2026, the Company entered into additional amendments to the warrants reducing the exercise price to $4.00 per warrant share and $3.00 per warrant share, respectively, and recognized additional aggregate incremental fair value of $472,150 in Other Income (Expense). During the three months ended June 30, 2026, Streeterville Capital, LLC exercised 230,000 outstanding warrants associated with the PPP #1, which had an aggregate fair value of $994,332 through a series of separate cash exercise transactions. In connection with such exercises, the Company received cash proceeds and issued shares of Class A common stock pursuant to the terms of the applicable warrant agreements. See Note 12 for additional information regarding the warrant exercises and related equity activity.

The Company determined that certain embedded features contained in PPP #1 required bifurcation and separate accounting as a derivative liability under ASC 815. The fair value of the embedded derivative was $2,453,051 upon initial recognition on January 27, 2026. After giving effect to the revised warrant allocation, the Company recorded a derivative-related debt discount of $2,453,051, equal to the initial fair value of the embedded derivative. No day-one loss was recognized. The derivative liability is subsequently remeasured at fair value at each reporting date, with changes in fair value recognized in earnings.

As revised, the fair value of the PPP #1 derivative liability was $2,249,777 at March 31, 2026 and decreased to $1,900,649 at June 30, 2026. Accordingly, the Company recognized a gain of $349,128 from the change in fair value of the derivative liability during the three months ended June 30, 2026.

As revised, the carrying value of the debt host associated with PPP #1 at June 30, 2026 and March 31, 2026 was approximately $4.571 million and $2.794 million, respectively, representing principal of $8,640,000 less unamortized debt discounts of approximately $4.069 million and $5.846 million, respectively. The debt host is classified as a current liability and is included in current notes payable on the condensed consolidated balance sheets. Discount amortization included in interest expense was approximately $1.778 million and $0 for the three months ended June 30, 2026 and 2025, respectively. Contractual interest expense on PPP #1 was $131,966 and $0 for the three months ended June 30, 2026 and 2025, respectively.

Second Prepaid Purchase Agreement

On May 22, 2026, the Company entered into PPP #2 with Streeterville Capital, LLC. PPP #2 had an original principal amount of $3,471,923, bears interest at 6% per annum, and contains terms substantially consistent with those of the original PPP #1, including the investor’s ability to apply outstanding amounts toward the purchase of shares of the Company’s Class A common stock in accordance with the terms of the agreement. See “Prepaid Purchase Agreement” above for additional information. The Company may prepay all or a portion of the outstanding balance, subject to specified prepayment premiums based on the timing of repayment. The agreement also contains customary events of default and a beneficial ownership limitation that generally prohibits the investor from beneficially owning more than 9.99% of the Company’s outstanding Class A common stock.

Upon initial recognition of PPP #2 on May 22, 2026, the Company elected the fair value option under ASC 825 and therefore measures the entire instrument at fair value on a recurring basis. PPP #2 was initially recognized at a fair value of $3,897,000. As of June 30, 2026, the fair value of PPP #2 remained $3,897,000 and is included in current notes payable on the condensed consolidated balance sheet.

Contractual interest expense on PPP #2 was $23,222 for the three months ended June 30, 2026. Because the total fair value of the instrument remained unchanged from May 22, 2026 through June 30, 2026, the Company recognized a corresponding $23,222 change in fair value of debt during the three months ended June 30, 2026. There was no change in fair value attributable to instrument-specific credit risk during the period.

Exchange Note

Effective March 31, 2026, the Company entered into an exchange agreement with Streeterville Capital, LLC (the “Exchange Agreement”) pursuant to which certain previously issued 2024 subordinated promissory notes (see below “2024 Notes”) originally issued to various investors between July 15, 2024 and December 10, 2024 were exchanged for a new promissory note (the “Exchange Note”) in the aggregate principal amount of $2,681,718. The Exchange Note matures on July 1, 2027, and bears interest at a fixed rate of 6% per annum, compounded daily based on a 360-day year. The Exchange Note includes an original issue discount of $242,883, which is amortized over the life of the note.

Pursuant to the Exchange Agreement, Streeterville Capital, LLC acquired the 2024 Notes from the original holders and surrendered the 2024 Notes to the Company in exchange for the Exchange Note. Streeterville did not acquire the 2024 Note held by Ugo de Charette. Instead, on March 30, 2026, the Company repaid Ugo de Charette’s note in full through a cash payment of $130,723.

Upon surrender, the 2024 Notes were cancelled and the Company’s remaining obligations under the 2024 Notes became evidenced solely by the Exchange Note. No additional cash consideration was received by the Company in connection with the transaction.

Between May 1, 2026 and May 27, 2026, Streeterville made partial redemptions under the Exchange Agreement with an aggregate Redemption Amount of $284,500, pursuant to which 93,333 shares of Class A common stock were issued. The Redemption Amount included principal and accrued interest, and the outstanding principal balance of the Exchange Note was reduced by approximately $259,054. The consideration received by the Company consisted of the corresponding reduction in indebtedness under the Exchange Note. The shares were issued free of any restrictive securities legend pursuant to Rule 144. The Company recognized a loss on extinguishment of debt of approximately $138,920 in connection with these partial redemptions.

The carrying value of the Exchange Note at June 30, 2026 and March 31, 2026 was $2,247,127 and $2,438,835, respectively (principal of $2,422,664 and $2,681,718 less unamortized discount of $175,537 and $242,883, respectively). Discount amortization included in interest expense was $46,748 and $0 for the three months ended June 30, 2026 and 2025, respectively. Interest expense on the note was $38,806 and $0 for the three months ended June 30, 2026 and 2025, respectively. Beginning July 1, 2026, Streeterville has the right, at its sole and absolute discretion, to redeem up to $111,738.27 per month upon delivery of a Redemption Notice. Accordingly, as of June 30, 2026, $1,207,609, of the Exchange Note’s carrying value was classified as current notes payable, and the remaining $1,039,518 was classified as long-term notes payable.

Warrant Amendments

On June 1, 2026 and June 29, 2026, the Company entered into amendments to the Equity Financing Warrant, the Second Debt Financing Warrant, and the Third Debt Financing Warrant (collectively, the “Warrant Amendments”) with Streeterville Capital, LLC. The Warrant Amendments were intended to provide additional flexibility in connection with the Company’s ongoing relationship with Streeterville Capital. Effective June 1, 2026, the exercise price under each warrant was reduced from $6.00 per share to $4.00 per share, and the Reduced Exercise Price Period was extended through the original expiration date of the warrants on July 27, 2026. Effective June 29, 2026, the exercise price under each warrant was further reduced from $4.00 per share to $3.00 per share, while the expiration date remained unchanged. See Note 19 for information regarding subsequent amendments to the Equity Financing Warrant, the Second Debt Financing Warrant, and the Third Debt Financing Warrant, entered into after June 30, 2026.

The Company accounted for each Warrant Amendment as a modification of the existing warrants. As a result, the Company recognized aggregate incremental fair value adjustments of $584,150 in Other Income (Expense) during the three months ended June 30, 2026, with a corresponding increase to additional paid-in capital.

Extinguishment of Certain 2024 Notes

In June 2025, the Company and certain investors amended the terms of the 2024 Notes to allow cancellation in exchange for Series B Preferred Stock and warrants. Under ASC 470, this amendment represented a debt extinguishment. At that time, the Company extinguished $400,000 of principal and $62,975 of accrued interest. In connection with the extinguishment, the Company issued 74,430 shares of Series B Preferred Stock, valued at $462,955 based on the Series B subscription price, and warrants to purchase common stock valued at $122,884 using a Black-Scholes model. As the total fair value of the equity instruments issued exceeded the carrying amount of the debt, the Company recorded a loss on debt extinguishment of $122,864.

Cancellation of Certain 2024 Notes

On June 30, 2025, the amended notes were cancelled in exchange for the issuance of 74,430 shares of Series B Preferred Stock and 74,430 warrants. This exchange was treated as a conversion within the amended terms of the notes, and therefore no additional gain or loss was recognized.

Western Technology Investment Note

The Company repaid all outstanding obligations under its note payable with Western Technology Investment on August 22, 2025. There was no outstanding balance at June 30, 2026 or March 31, 2026. Discount amortization and amortization of deferred loan costs included in interest expense was $0 and $2,098 for the three months ended June 30, 2026 and 2025, respectively. Interest expense on the note was $0 and $5,910 for the three months ended June 30, 2026 and 2025, respectively.

EIDL Loan

On August 29, 2020, the Company received a loan from the U.S. Small Business Administration under its Economic Injury Disaster Loan assistance program (the “EIDL Loan”). The principal amount was $25,000, with proceeds used for working capital.

The EIDL Loan matures in August 2050, bears interest at 3.75% per year, with accrued interest payable monthly beginning in March 2023, and principal payments beginning in September 2024.

The carrying amount of the EIDL Loan was $23,947 and $24,087 as of June 30, 2026 and March 31, 2026. Interest expense on the EIDL Loan was $150 for the three months ended June 30, 2026.

Future Maturities of Notes Payable

At June 30, 2026, the future maturities of notes payable are as follows for the ficscal years ending:

Note 9. Leases

The Company accounts for leases in accordance with ASC 842,Leases. The Company has elected the package of practical expedients permitted under the transition guidance within ASC 842, which allows the Company to (i) not reassess whether any expired or existing contracts contain leases, (ii) not reassess the lease classification of any expired or existing leases, and (iii) not reassess initial direct costs for any existing leases. The Company has also elected the short-term lease exemption for certain leases with a term of 12 months or less.

Right-of-use (“ROU”) assets are presented in non-current assets on the consolidated balance sheets, while the corresponding lease liabilities are split between current and non-current liabilities. Because the Company does not have access to the rate implicit in its leases, it applies an incremental borrowing rate based on the information available at lease commencement to determine the present value of future lease payments.

The Company leases office, warehouse, and apartment space in the United States, China, and Hong Kong under various operating lease agreements. The U.S. headquarters lease, originally entered into in 2015, has been extended multiple times and currently expires November 30, 2029, with monthly base rent of $14,960, escalating annually to $18,204. The Company leases office, warehouse, and storage space in China which expired as of September 2025, and continues as a month-to-month lease. The Company maintains a month-to-month apartment lease in China. In July 2025, the Company entered into office and apartment space leases in Hong Kong with monthly base rent of $897 and $1,987, respectively, that expire in June 2027 and July 2027. The Company also maintains a month-to-month lease in China which is excluded from ASC 842 reporting.

As of June 30, 2026, ROU assets totaled $701,512, with current lease liabilities of $256,966 and non-current lease liabilities of $444,546. As of March 31, 2026, ROU assets totaled $779,514, with current lease liabilities of $286,702 and non-current lease liabilities of $492,812.

At June 30, 2026, the future estimated minimum lease payments under non-cancelable operating leases are as follows for the fiscal years ending:

Lease expense recognized in the consolidated statements of operations for the three months ended June 30, 2026 and 2025, was $108,995 and $100,252, respectively. Cash paid for operating leases during the three months ended June 30, 2026 and 2025 was $91,244 and $82,591, respectively.

As of June 30, 2026, the weighted-average remaining lease term for the operating leases is 2.90 years, and the weighted-average discount rate is 6.50%. As of March 31, 2026, the weighted-average remaining lease term was 3.88 years, and the weighted-average discount rate was 7.04%.

Note 10. Research and Development

Research and Development expense for the three months ended June 30, 2026 and 2025, was $309,375 and $208,716, respectively.

Note 11. Commitments and Contingencies

In February 2024, the Company was named a co-defendant and served a citation by a customer related to alleged injuries obtained when attempting to use the Omni Arena attraction at an entertainment venue. The Company’s attorneys, retained by the Company’s insurance provider, filed a general denial and alleged contributory negligence against the plaintiff. During the three months ended June 30, 2026, the parties signed a final settlement agreement and release, resolving the matter. All legal costs and settlement fees are covered by the Company’s insurance provider.

From time to time, the Company may become involved in legal proceedings and claims arising in the ordinary course of business. The Company assesses such matters based on the information available and records a liability when it is probable that a loss has been incurred and the amount can be reasonably estimated. The Company also considers whether disclosure is required for matters for which a loss is reasonably possible. The ultimate outcome of legal proceedings and claims is subject to inherent uncertainty and could have a material adverse effect on the Company’s business, financial condition, or results of operations. There is no pending litigation involving the Company at this time.

Note 12. Capital Stock

Authorized Capital Stock

On August 6, 2025, stockholders approved, and on August 7, 2025, the Company filed with the Secretary of State of the State of Delaware, the Sixth Amended and Restated Certificate of Incorporation (the “Certificate”). Pursuant to the Certificate, the Company reclassified and converted each share of its previously outstanding capital stock into shares of Class A common stock, effective immediately upon the acceptance of the Certificate for filing by the Secretary of State of Delaware.

As a result of the reclassification and conversion, all outstanding shares of the Company’s capital stock, including all series of preferred stock and any previously outstanding common stock, were automatically reclassified and converted on a one-for-one basis into shares of Class A common stock. Following the effectiveness of the Certificate, only Class A common stock, Class B common stock, and undesignated and unissued Preferred Stock are authorized.

As of June 30, 2026, the Company is authorized to issue 300,000,000 shares of Class A common stock, 50,000,000 shares of Class B common stock, and 50,000,000 shares of Preferred Stock.

Capital Stock Rights

Holders of Class A common stock, Class B common stock, and future holders of Preferred Stock are entitled to dividends, voting rights, liquidation preferences, conversion rights, and anti-dilution protections as described in the Company’s Sixth Amended and Restated Certificate of Incorporation.

Common Stock

Voting Rights

Holders of Class A common stock and Class B common stock generally vote together as a single class on all matters submitted to a vote of stockholders, except as otherwise required by Delaware law or the Company’s Certificate of Incorporation. Each share of Class A common stock is entitled to one vote per share. Each share of Class B common stock is entitled to twenty votes per share. The holders of Class B common stock will have the ability to control the outcome of matters submitted to stockholders for approval, including the election of directors and the approval of any change in control transaction, for so long as they hold a majority of the voting power of the outstanding capital stock.

Under the Company’s Certificate of Incorporation, the number of authorized shares of either class of common stock may be increased or decreased (but not below the number of shares then outstanding) by the affirmative vote of the holders of a majority in voting power of the outstanding shares of capital stock entitled to vote, without a separate class vote, except as otherwise required by law or the Certificate of Incorporation.

Note 12. Capital Stock (continued)

Dividend Rights

Subject to preferences that may apply to any shares of preferred stock outstanding at the time, holders of Class A common stock and Class B common stock are entitled to receive dividends and other distributions as may be declared from time to time by the board of directors out of funds legally available therefor. Dividends and distributions must be paid equally, identically, and ratably on a per-share basis to holders of Class A common stock and Class B common stock, unless different treatment is approved by a majority of each class, voting separately as a class. In the event a dividend is paid in the form of shares of common stock, holders of Class A common stock will receive Class A common stock and holders of Class B common stock will receive Class B common stock.

Subdivisions and Combinations

If the Company subdivides or combines the outstanding shares of either class of common stock, the outstanding shares of the other class will be subdivided or combined in the same proportion and manner, unless different treatment is approved by a majority of each class, voting separately as a class.

Conversion Rights

Each share of Class B common stock is convertible at any time at the option of the holder into one (1) share of Class A common stock. Shares of Class B common stock will automatically convert into an equal number of shares of Class A common stock upon (i) any transfer of such shares, except for certain permitted transfers to affiliates or family members as described in the Certificate, or (ii) the date specified by written notice and certification request from the Company if the holder fails to provide satisfactory certification of continued ownership, subject to certain exceptions. In addition, all outstanding shares of Class B common stock will automatically convert into Class A common stock upon the affirmative vote of the holders of at least two-thirds of the outstanding shares of Class B common stock, voting as a single class. Once converted, shares of Class B Common Stock may not be reissued.

Other Rights

Holders of Class A common stock and Class B common stock have no preemptive or subscription rights, and there are no redemption or sinking fund provisions applicable to either class. Upon liquidation, dissolution, or winding up of the Company, holders of Class A common stock and Class B common stock are entitled to share ratably in all assets remaining after payment of liabilities and any preferential rights of any outstanding preferred stock.

Common Stock Equity Transactions

During the three months ended June 30, 2026, the Company issued an aggregate of 12,000 shares of Class A common stock to FMW Media Works, LLC pursuant to a marketing and media services agreement in connection with a 12-month marketing and media services engagement. The shares were valued based on the Company’s closing stock price of $8.59 per share on January 29, 2026, the grant date, and the related stock-based compensation expense is recognized as the shares are issued over the term of the agreement.

Between May 1, 2026 and May 27, 2026, Streeterville Capital, LLC exchanged portions of the Exchange Note with an aggregate Redemption Amount of $284,500 for 93,333 shares of the Company’s Class A common stock pursuant to the Exchange Agreement, which were issued free of any restrictive securities legend pursuant to Rule 144. The Redemption Amount included principal and accrued interest. See Note 8 for additional information regarding the Exchange Note and related exchanges.

During the three months ended June 30, 2026, the Company incurred $96,600 of equity issuance costs, which were recorded as a reduction to additional paid-in capital. These costs were incurred pursuant to our placement agent agreement with Maxim Partners LLC, under which we are obligated to pay a cash success fee equal to 7.0% of gross proceeds received, including warrant exercise proceeds. For additional information, see Part II, Item 2, “Unregistered Sales of Equity Securities and Use of Proceeds.”

Preferred Stock Equity Transactions

During the three months ended June 30, 2025, the Company issued Series B Preferred Stock in connection with equity financings and debt extinguishments. Additional information regarding these transactions is included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2026.

Note 12. Capital Stock (continued)

Warrants

Warrants are issued in connection with debt (see Note 8) and equity financings from time to time at the Company’s discretion.

June 1, 2026 Warrant Amendment

Effective June 1, 2026, the Company amended the Equity Financing Warrant, the Second Debt Financing Warrant and the Third Debt Financing Warrant to reduce the exercise price from $6.00 per share to $4.00 per share and extend the Reduced Exercise Price Period through the then-current expiration date of the warrants. The Company measured the incremental fair value of the modification by comparing the fair value of the warrants immediately before and immediately after the modification using a Black-Scholes option-pricing model.

The significant assumptions used in the Black-Scholes valuation immediately before and after the June 1, 2026 modification included a stock price of $3.82, an expected term of approximately 0.15 years, expected volatility of 80%, a risk-free interest rate of 3.7%, and an expected dividend yield of 0%. The exercise price used in the valuation was $6.00 immediately before the modification and $4.00 immediately after the modification. The resulting incremental fair value of approximately $0.356 per warrant, or $424,403 in the aggregate. The Company recognized the incremental fair value in Other Income (Expense), with a corresponding increase to additional paid-in capital.

June 29, 2026 Warrant Amendment

Effective June 29, 2026, the Company further amended the Equity Financing Warrant, the Second Debt Financing Warrant and the Third Debt Financing Warrant to reduce the exercise price from $4.00 per share to $3.00 per share. The Company measured the incremental fair value of the modification by comparing the fair value of the warrants immediately before and immediately after the modification using a Black-Scholes option-pricing model.

The significant assumptions used in the Black-Scholes valuation immediately before and after the June 29, 2026 modification included a stock price of $2.73, an expected term of approximately 0.08 years, expected volatility of 80%, a risk-free interest rate of 3.7%, and an expected dividend yield of 0%. The exercise price used in the valuation was $4.00 immediately before the modification and $3.00 immediately after the modification. The resulting incremental fair value of approximately $0.134 per warrant, or $159,747 in the aggregate. The Company recognized the incremental fair value in Other Income (Expense), with a corresponding increase to additional paid-in capital.

During the three months ended June 30, 2026, Streeterville Capital, LLC exercised portions of its Equity Financing Warrant to purchase an aggregate of 230,000 shares of Class A common stock at an exercise price of $6.00 per share, resulting in aggregate cash proceeds to the Company of $1,380,000.

The following is a rollforward of warrants to purchase shares of Class A common stock for the three months ended June 30, 2026:

Warrants are recorded in equity at fair value at the date of issuance.

Note 13. Stock Compensation Expense

The Company accounts for stock-based compensation under ASC 718. Stock-based compensation expense related to stock options for the three months ended June 30, 2026 and 2025, was $7,594 and $10,897, respectively. As of June 30, 2026, total unrecognized compensation cost for non-vested stock options was $16,812, expected to be recognized over a weighted-average period of 9 months.

Stock-based compensation expense related to restricted stock units for the three months ended June 30, 2026 and 2025, was $612,263 and $0, respectively. As of June 30, 2026, total unrecognized compensation cost related to nonvested restricted stock units was $3,341,643, which is expected to be recognized over a weighted-average period of approximately 3.3 years.

Note 14. Income Taxes

Deferred taxes are recognized for temporary differences between the basis of assets and liabilities for financial statement and income tax purposes. The differences relate primarily to depreciable assets using accelerated depreciation methods for income tax purposes, share-based compensation expense, and for net operating loss carryforwards.

The Company recognizes deferred tax assets to the extent that it believes these assets are more likely than not to be realized. In making this determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and recent operating results. The federal tax rate in effect affecting future tax benefits at June 30, 2026 and 2025 was 21%. The Company assessed the need for a valuation allowance against its net deferred tax assets and determined that a full valuation allowance is required due to cumulative losses through June 30, 2026. Accordingly, no provision for deferred income taxes has been recognized.

Note 15. Investment in Joint Venture

As mentioned in Note 1, the Company had an investment in a Joint Venture named Heroix VR (Shanghai) Co., Ltd. (the “Joint Venture” or “Heroix”). VML had 49% ownership and did not have control over the Joint Venture. During the quarter ended June 30, 2026, the Company received a Certification of Dissolution and Tax Clearance from the People’s Republic of China confirming that Heroix had been legally dissolved, liquidated, and deregistered, with its legal personality terminated effective September 29, 2025. Based on this information, the Company concluded that it no longer possessed an ownership interest in Heroix and, accordingly, derecognized its remaining equity method investment. The investment was accounted for using the equity method through the date on which the joint venture was dissolved and the investment was derecognized.

For the three months ended June 30, 2026, the Joint Venture had operating revenue of $0, cost of goods sold of $0, operating costs of $0, and net loss of $0. Under the equity method, net loss attributable to the Company was $0, resulting in a share of loss in joint venture of $0 in the consolidated statement of operations for the three months ended June 30, 2026. The Company recognized a non-cash loss on derecognition of the Joint Venture of approximately $40,619 during the quarter ended June 30, 2026.

For the three months ended June 30, 2025, the Joint Venture had operating revenue of $0, cost of goods sold of $0, operating costs of $143, and net loss of $143. Under the equity method, net loss attributable to the Company was $70, resulting in a share of loss in joint venture of $70 in the consolidated statement of operations for the three months ended June 30, 2025.

Note 16. Revenue Disaggregation

Revenue streams from performance obligations included in net sales for the three months ended June 30, 2026 and 2025, in the consolidated statements of operations are as follows:

Substantially all of the Company’s revenues are derived from customers located in the United States. Revenue attributable to individual foreign countries was not material for the periods presented. Accordingly, the Company has not separately presented revenue by geographic area.

Note 17. Segment Reporting

The Company operates in a single operating segment: the design, development, marketing, and sale of omni-directional treadmills, accessories, and related services to consumer and commercial customers. This single operating segment has been identified based on internal management structure and reporting to the Company’s Chief Operating Decision Maker (“CODM”), the Company’s Chief Executive Officer.

The Company’s CODM evaluates segment performance based on the revenues, gross profit and operating loss of the segment and uses internal financial statements to make decisions regarding resource allocation. Revenues, gross profit and operating loss used by the CODM are presented on the accompanying consolidated statements of operations. The significant expense categories regularly provided to the CODM and included in the measure of segment operating loss are presented in the accompanying consolidated statements of operations. The measure of segment assets is represented as total assets presented on the accompanying consolidated balance sheets. While there are intercompany transactions between consolidated entities, these are eliminated in consolidation and do not impact the Company’s single segment presentation.

The Company has not identified any reportable segments other than the single operating segment discussed.

Note 18. Patents

As of June 30, 2026, the Company owns fifteen issued utility patents and ten issued design patents, and five additional applications are still pending. Four of the patents are also issued internationally in one or more countries, including Australia, Brazil, China, South Korea, Russia, Europe, and India.

Note 19. Subsequent Events

In July and August 2026, the Company issued an aggregate of 33,000 shares of Class A common stock to FMW Media Works LLC (“New To The Street”) in connection with marketing and media services. These shares were issued as restricted securities in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act and/or Regulation D promulgated thereunder, as a transaction not involving a public offering to an accredited investor.

Between July 1, 2026, and July 27, 2026, Streeterville Capital, LLC exercised portions of its Equity Financing Warrant to purchase an aggregate of 455,500 shares of Class A common stock at an average exercise price of $2.59 per share, for aggregate proceeds to the Company of $1,181,250.

On July 21, 2026, the Company entered into amendments to the Equity Financing Warrant, the Second Debt Financing Warrant, and the Third Debt Financing Warrant to purchase shares of Class A common stock (collectively, the “Warrant Amendments”) with Streeterville Capital, LLC amending the exercise price and extending the Reduced Exercise Price Period to each such warrant. Each of the warrants listed above was previously amended to establish a reduced exercise price period (the “Reduced Exercise Price Period”) during which the exercise price was amended to $3.00 per Warrant share. The Warrant Amendments further reduced the exercise price to $2.50 per Warrant share and extended the Reduced Exercise Price Period to the expiration date of the warrants of August 27, 2026, with such date automatically extended for four (4) additional consecutive one (1)-month periods unless the Special Committee of the Board of Directors determines not to extend.

Between July 28, 2026 and August 5, 2026, David Allan, the Company’s Chief Operating Officer (“COO”) and President, sold an aggregate of 500,000 shares of the Company’s Class A common stock pursuant to a Rule 10b5-1 trading arrangement that was effective March 31, 2026. Mr. Allan has informed the Company that he does not currently intend to adopt a new Rule 10b5-1 trading arrangement or sell additional shares of the Company’s Class A common stock.

On August 5, 2026, Streeterville Capital, LLC made a partial redemption in connection with the Exchange Agreement pursuant to which new promissory notes in the principal amount of $95,000 were partitioned from the Exchange Note and exchanged for 59,823 shares of Class A common stock issued free of any restrictive securities legend pursuant to Rule 144, reducing the outstanding balance of the Exchange Note by $67,389.