QNME 10-K & 10-Q changes, risk factors and insider trading

Risks Related to Our Business and Development

Our pharmaceutical distribution business depends on our relationships with manufacturers, suppliers and other business partners and our ability to maintain an adequate supply of products.

We rely on pharmaceutical manufacturers, suppliers, agents, logistics providers and other third parties to obtain and distribute the products we sell. Our ability to maintain or expand our pharmaceutical distribution business depends in part on maintaining these relationships and obtaining products on commercially acceptable terms. We may experience interruptions or changes in product supply as a result of manufacturing constraints, changes in supplier relationships, product shortages, regulatory actions, changes in pricing or commercial terms, logistics disruptions or other factors beyond our control. If we are unable to obtain sufficient quantities of products, maintain important supplier relationships or secure alternative sources on acceptable terms, our ability to satisfy customer demand and our revenue and profitability could be adversely affected.

We face competition and changes in customer demand, procurement practices and pricing that could adversely affect our revenue and profitability.

The pharmaceutical distribution industry in China is competitive, and we compete with national and regional pharmaceutical distributors, wholesalers and other companies offering similar products and services. Certain competitors may have greater financial resources, broader product portfolios and distribution networks, stronger purchasing power or more established relationships with manufacturers, hospitals and other customers. In addition, our results may be affected by changes in hospital and customer demand, procurement and bidding cycles, government or regional procurement programs, competitive pricing and changes in our product mix. We may also depend on significant customers for a portion of our revenue, and the loss or reduction of purchases by such customers could adversely affect our results. If we are unable to maintain customer relationships, compete effectively, participate successfully in applicable procurement processes or manage pricing and margin pressure, our business, financial condition and results of operations could be materially and adversely affected.

We may not be successful in expanding into new business areas or markets, and such expansion may expose us to additional operational, regulatory and execution risks.

Our current operating business is primarily focused on pharmaceutical distribution through Hupan Pharmaceutical. We continue to evaluate opportunities to expand and diversify our business, including into areas in which we have limited or no prior operating experience. As part of these initiatives, we expect to develop computational capabilities through Quantum Nexus that may have applications in therapeutic discovery, and we may pursue collaborations, acquisitions or other strategic transactions involving laboratories and research teams engaged in therapeutic discovery and clinical research. We have not generated any revenue from these activities and, as of the date of this report, have not entered into any definitive agreement with respect to any such transaction.

Our ability to successfully enter and develop these or other new business areas is uncertain. We may lack relevant industry experience, technical capabilities, personnel, customer relationships or regulatory expertise, and we may be unable to identify or successfully complete suitable collaborations, acquisitions or other strategic transactions. Any expansion may require significant capital and management resources and may expose us to additional regulatory, technological, competitive and operational risks. There can be no assurance that any such initiative will be successfully implemented, generate revenue or achieve profitability. If we are unable to successfully execute our expansion or diversification initiatives, our business, financial condition, results of operations and prospects could be materially adversely affected.

Our long-term growth and competitiveness are highly dependent on our ability to control costs.

Our ability to grow our business and improve profitability depends in part on our ability to effectively manage operating costs while maintaining the quality and reliability of our products and services. In addition, our evaluation and potential development of new business initiatives may require substantial additional expenditures before generating any revenue, if at all. Such initiatives may require investments in technology, specialized personnel, research capabilities, professional services, regulatory compliance and infrastructure, and we may not be able to accurately estimate or control these costs.

If our operating expenses increase more rapidly than our revenues, if we are unable to achieve expected efficiencies, or if we incur significant costs in connection with new business initiatives that do not result in commercially successful operations, our margins, liquidity, financial condition and results of operations could be materially adversely affected.

Any failure to obtain or maintain requisite approvals, licenses, permits or other regulatory authorizations applicable to our business could materially adversely affect our business, financial condition and results of operations.

Our current pharmaceutical distribution and related activities are subject to various licensing, permitting, filing and other regulatory requirements in the jurisdictions in which we operate. We are required to obtain and maintain applicable approvals, licenses and permits and to comply with laws and regulations governing, among other matters, pharmaceutical distribution, product quality, business operations and other related activities. These requirements may change from time to time, and the interpretation or enforcement of applicable laws and regulations may also evolve.

Any expansion into new business areas may subject us to additional regulatory regimes and require additional approvals, licenses, registrations or permits. Because these initiatives remain preliminary, we cannot currently determine the full scope of requirements that may apply. If we fail to obtain or maintain any required authorization, we could face fines, penalties, operational restrictions, increased compliance costs or suspension of operations, any of which could materially adversely affect our business, financial condition and results of operations.

Failure to renew our current leases or locate desirable premises for our facilities, or challenges on the use of certain leased properties by us or our service providers, could materially and adversely affect our business, financial condition and results of operations.

We lease properties used in our pharmaceutical distribution operations, and certain service providers may also lease premises used for storage, transportation or distribution. If we or our service providers are unable to renew existing leases on commercially reasonable terms, we may need to relocate affected operations, resulting in disruption, additional costs or delays. As our business develops, we may also need additional warehousing or distribution capacity, and suitable premises may not be available on acceptable terms or within the required timeframe. Any resulting disruption or increase in occupancy costs could materially adversely affect our business, financial condition and results of operations.

None of our service agreements with our customers is on an exclusive basis.

Our customers may purchase pharmaceutical products or obtain related distributions from other suppliers in addition to or instead of us. Although we have established relationships with certain major customers, there can be no assurance that they will continue to purchase from us at historical levels or at all. Any reduction in purchases by major customers could materially and adversely affect our business, financial condition and results of operations.

We may be subject to potential liability in connection with pending or threatened legal proceedings and other matters, which could adversely affect our business, financial condition or results of operations.

From time to time, we may become a party to various legal or administrative proceedings arising in the ordinary course of our business. We may also be subject to potential liabilities in connection with pending or threatened legal proceedings arising from breach of contract claims and other matters. These proceedings, investigations, claims and complaints could be initiated or asserted under or on the basis of a variety of laws in different jurisdictions, including data protection and privacy laws, trucker or consumer protection laws, labor and employment laws, transportation laws, advertising laws, intellectual property laws, securities laws, tort laws, contract laws and property laws. There is no guarantee that we will be successful in defending ourselves in legal and administrative actions or in asserting our rights under these various laws. If we fail to defend ourselves in these actions, we may be subject to restrictions, fines or penalties that will materially and adversely affect our business, financial condition and results of operations. Even if we are successful in the attempt to defend ourselves in legal and regulatory actions or to assert our rights under various laws and regulations, the process of communicating with relevant regulators, defending ourselves and enforcing our rights against the various parties involved may be expensive and time-consuming. These actions could expose us to negative publicity, substantial monetary damages and legal defense costs, injunctive relief and criminal and civil fines and penalties, including but not limited to suspension or revocation of licenses to conduct business.

Our newly launched AI compute and managed inference business is at an early stage and may not develop as expected.

Beginning in September 2026, we commenced activities relating to the provision of artificial intelligence compute capacity and managed inference services through our indirectly owned subsidiary XDT Infrastructure I, LLC. This business is at an early stage, and our operating model, customer base, pricing structure, infrastructure requirements and service capabilities are still developing. We have limited operating history in this area and may encounter difficulties in acquiring and deploying computing resources, attracting and retaining customers, managing technical operations, controlling costs and scaling the business. We may also be required to make significant expenditures before generating meaningful or recurring revenue. If we are unable to successfully develop and commercialize this business, our results of operations and financial condition could be adversely affected.

Our ability to provide AI compute services depends on the availability, performance and cost of specialized computing infrastructure.

Our business depends on access to servers, graphics processing units, networking equipment, hosting capacity and related infrastructure. Specialized computing hardware may be expensive, subject to supply constraints, technological obsolescence or extended procurement lead times. Increases in hardware, hosting, electricity, networking, maintenance or other infrastructure costs could reduce our margins or limit our ability to expand capacity. In addition, hardware failures, shortages of replacement components or delays in deploying additional capacity could affect our ability to serve existing or prospective customers.

Interruptions, failures or security incidents affecting our infrastructure or service providers could disrupt our operations.

Our new service line depends on the continuous availability of servers, data center facilities, power, networking, software systems, APIs and other infrastructure operated by us or third-party service providers. Such infrastructure may be affected by hardware failures, software errors, power outages, network disruptions, cyberattacks, human error, natural disasters or other events. Even where customer environments are physically or logically segregated, a failure affecting underlying infrastructure may interrupt customer access or reduce service availability. Any prolonged or repeated interruption could result in contractual claims, service credits, customer loss and reputational damage.

We may depend on third-party technology, software, models and infrastructure that we do not control.

Our services may rely on third-party hardware, software frameworks, model architectures, APIs, hosting providers or other technology. We may be required to comply with applicable license terms, usage restrictions and technical requirements imposed by such third parties. If a third party modifies or terminates our access to its technology, changes its pricing or licensing terms, experiences service interruptions, or determines that our use is inconsistent with its terms, our ability to provide services to customers may be adversely affected. We may also incur additional costs to replace or modify affected technology.

Our use and deployment of customer-selected artificial intelligence models may expose us to intellectual property, licensing and other legal risks.

Under our current service plan, customers may request that specific artificial intelligence models, software or other technology be deployed on infrastructure allocated to them. We may not independently verify all intellectual property rights, licenses or restrictions applicable to customer-selected models or related software. If a model, dataset, software component or other technology is used without sufficient authorization, we could become involved in intellectual property, contractual or other disputes. We may also face uncertainty regarding ownership or permitted use of model outputs, fine-tuned models, configuration files or other technology generated or modified through our services.

Our business may be subject to evolving export control, sanctions, data protection, cybersecurity and other regulatory requirements, which could restrict our ability to provide AI computing services to certain customers or in certain jurisdictions.

As of the date of this annual report, we have not generated revenue from this new service line, nor have we engaged any customers. We cannot assure you that the future provision of advanced computing infrastructure, artificial intelligence-related services, software and technical access will not subject to export control, sanctions, data protection, cybersecurity and other regulatory requirements in the jurisdictions in which we and our customers operate.

In particular, certain high-performance GPUs, servers incorporating such GPUs, related software and technology, and certain transactions involving advanced computing capabilities are subject to U.S. export controls administered by the U.S. Department of Commerce’s Bureau of Industry and Security. Depending on the applicable hardware or technology, destination, customer, ultimate parent, end user and intended end use, applicable requirements may restrict or prohibit certain transactions, require governmental licenses or other authorizations, or require enhanced customer screening, end-user and end-use diligence, certifications, recordkeeping, technical controls or contractual restrictions. Export-control requirements may also affect our ability to provide remote access to computing capacity or related services to certain customers, users or jurisdictions.

U.S. export-control requirements relating to advanced computing, artificial intelligence and semiconductor technologies have changed significantly in recent years and may continue to change. Such requirements could limit the equipment we are able to deploy, the customers or jurisdictions we are able to serve, the manner in which customers may access or use our computing infrastructure, or our ability to obtain or maintain equipment and services from suppliers. They may also require us to modify customer onboarding, know-your-customer and beneficial ownership procedures, technical access controls, contractual arrangements, or other aspects of our operations. Similar restrictions may arise under applicable sanctions regimes or foreign laws.

Because we have not yet engaged customers for this service line, we have not yet fully evaluated the regulatory requirements that may apply to particular customer arrangements, jurisdictions or use cases. We expect to conduct such assessments based on the location and ownership of the customer and end users, the nature and classification of the applicable equipment or technology, the intended use of the computing capacity and other relevant circumstances. We cannot assure you that required licenses or authorizations, if any, will be available or obtained on acceptable terms or within the required timeframe.

Any failure or perceived failure to comply with applicable export control, sanctions, data protection, cybersecurity or other regulatory requirements could result in governmental investigations, civil or criminal penalties, denial or suspension of export privileges, restrictions on our operations, contractual liability, reputational harm or increased compliance costs. Regulatory requirements relating to artificial intelligence, advanced computing and cross-border technology access continue to evolve, and compliance may require additional screening, technical controls, contractual restrictions and other measures. Failure to comply with applicable requirements could result in penalties, restrictions on our operations or reputational harm.

Rapid technological change could impair the value of our infrastructure and require significant additional investment.

Artificial intelligence hardware, model architectures and inference technologies are evolving rapidly. New generations of processors, networking technologies, model optimization techniques or software frameworks may make our existing infrastructure less competitive or economically efficient. We may need to upgrade, replace or reconfigure hardware and software sooner than anticipated in order to remain competitive. Such investments may be substantial and may not generate sufficient returns before becoming obsolete.

Our emerging quantum- and certain other advanced technology activities may become subject to an evolving and potentially complex regulatory framework, which could increase our costs or restrict our activities.

Our quantum- and certain other advanced technology activities remain in the development and evaluation stage. As we further develop these activities, we may become subject to a variety of U.S. federal and state, foreign and other laws, regulations and governmental policies relating to, among other matters, artificial intelligence, quantum technologies, data privacy and security, cybersecurity, intellectual property, consumer protection, export controls and the transfer or use of certain technologies. The laws and regulations applicable to these activities may depend on a number of factors, including the nature of the technologies and applications we develop or use, the types of information we collect or process, where such information is collected or processed, the location of users or other data subjects, the jurisdictions in which we or our subsidiaries conduct activities, the industries in which our technologies may be applied, and the nature of our relationships with technology providers, research institutions and other collaborators. As a result, the regulatory requirements applicable to our activities may change as our business develops.

Laws, regulations and governmental policies relating to emerging technologies continue to evolve, and their interpretation and application may be uncertain. New or changing requirements could require us to obtain licenses, approvals or other authorizations, modify our technologies or data practices, impose limitations on collaborations or cross-border activities, increase compliance costs or restrict our ability to develop or commercialize certain applications. We may also incorrectly determine that a particular law, regulation or licensing requirement does not apply to us. Any failure to identify or comply with applicable requirements, or any significant change in the regulatory framework applicable to our activities, could delay or limit our development efforts, increase our costs and materially and adversely affect our business, financial condition, results of operations and prospects.

We are subject to anti-corruption, anti-bribery, anti-money laundering, financial and economic sanctions and similar laws, and non-compliance with such laws could adversely affect our business, results of operations, financial condition and reputation.

We are subject to anti-corruption, anti-bribery, anti-money laundering, financial and economic sanctions and similar laws and regulations in the jurisdictions in which we operate or may operate, including the U.S. Foreign Corrupt Practices Act, or the FCPA, to the extent applicable. The FCPA generally prohibits corrupt payments or offers of value to foreign officials for the purpose of obtaining or retaining business and also imposes certain books, records and internal controls requirements. As we evaluate potential expansion into new business areas or jurisdictions, including the possibility of conducting or generating revenue from U.S.-related business activities in the future, we may become subject to additional compliance obligations under U.S. and other applicable laws. Any non-compliance could result in investigations, fines, penalties, remedial measures, legal expenses or reputational harm, which could materially and adversely affect our business, results of operations and financial condition.

If we fail to implement and maintain effective internal control over financial reporting, we may be unable to accurately report our results of operations, meet our reporting obligations or prevent fraud, and investor confidence and the market price of our common stock may be materially and adversely affected.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Based on management’s evaluation as of June 30, 2026, our internal control over financial reporting was not effective due to material weaknesses relating to (i) inadequate segregation of duties and effective risk assessment and (ii) insufficient written policies and procedures for accounting and financial reporting under U.S. GAAP and SEC requirements.

We are taking steps to remediate these material weaknesses, including hiring additional accounting personnel with U.S. GAAP and SEC reporting experience, implementing formal period-end financial reporting procedures and controls, and enhancing our internal audit function and Sarbanes-Oxley compliance processes. However, the implementation of these measures is ongoing, and we cannot assure you that they will be sufficient to remediate the identified material weaknesses or prevent additional deficiencies in the future.

If we are unable to remediate these material weaknesses or otherwise maintain effective internal control over financial reporting, we may be unable to produce timely and accurate financial statements, investors may lose confidence in our financial reporting, and we may become subject to regulatory scrutiny or additional compliance costs, any of which could materially adversely affect our business, financial condition, results of operations and the market price of our common stock.

Our insurance coverage may not be sufficient, which could expose us to significant costs and business disruptions.

We have obtained or caused relevant counterparties to obtain insurance to cover certain potential risks and liabilities. There can be no assurance that our insurance coverage is sufficient to prevent us from any loss or that we will be able to successfully claim our losses under our current insurance policies on a timely basis, or at all. If we incur any loss that is not covered by our insurance policies, or the compensated amount is significantly less than our actual loss, our business, financial condition and results of operations could be materially and adversely affected.

Risks Related to Our Business Operations in the PRC

The PRC government may exert significant influence over our PRC subsidiaries’ operations, which could result in a material change in our operations and/or in the value of the securities we are registering, and could cause the value of our securities to significantly decline or become worthless.

Our operating subsidiary, Hupan Pharmaceutical, is a China-based company and has business operations in the PRC. Accordingly, the PRC government has significant oversight, control and discretion over the conduct of Hupan Pharmaceutical’s business and may intervene or influence our operations at any time. The PRC government has recently published new policies that significantly affected certain industries, and we cannot rule out the possibility that it will in the future do the same regarding Hupan Pharmaceutical’s industry, including policies that could require us to seek permission from the PRC authorities to continue to operate our PRC business.

In February 2023, the China Securities Regulatory Commission (the “CSRC”) released the Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Enterprises (the “Trial Measures”), which came into effect on March 31, 2023. The Trial Measures comprehensively improve and reform the existing regulatory regime for overseas offering and listing of PRC domestic companies’ securities and regulate both direct and indirect overseas offering and listing of PRC domestic companies’ securities by adopting a filing-based regulatory regime.

In February 2023, the CSRC and other PRC governmental authorities jointly issued the Provisions on Strengthening the Confidentiality and Archives Administration of Overseas Securities Offering and Listing by Domestic Companies (the “Confidentiality Provisions”), which came into effect on March 31, 2023. According to the Confidentiality Provisions, PRC domestic companies that directly or indirectly conduct overseas offerings and listings shall strictly abide by the laws and regulations on confidentiality when providing or publicly disclosing, whether directly or through their overseas listed entities, materials to securities services providers. In the event such materials contain state secrets or working secrets of government agencies, PRC domestic companies shall first obtain approval from authorities, and file with the secrecy administrative department at the same level with the approving authority; in the event that such materials, if divulged, will jeopardize national security or public interest, PRC domestic companies shall comply with procedures stipulated by national regulations.

Following the disposition of our U.S. business in February 2026, a substantial majority of our current revenue is derived from its PRC operations. We intend to develop additional business lines through subsidiaries in the Cayman Islands. However, these planned businesses remain subject to development and commercialization risks, and there can be no assurance that we will successfully establish meaningful operations or generate material revenue outside China.

If (i) we mistakenly conclude that certain regulatory filings, permissions and approvals are not required, (ii) applicable laws, regulations, or interpretations change, or (iii) we are required to obtain such filings, permissions or approvals in the future, we may be unable to obtain them in a timely manner, or at all, and such filings, permissions or approvals may be denied or rescinded even if obtained. We may face adverse actions or sanctions by the CSRC or other PRC regulatory agencies if we are unable to comply with such requirements, which may result in fines and penalties, restrictions on our operations, having to delist from a stock exchange outside of China, the halting of securities offerings to foreign investors and/or other actions that could materially and adversely affect our operations.

Any such actions or sanctions, once taken by the PRC government, could significantly limit, delay or hinder our ability to offer or continue to offer securities to investors, could result in a material change in our operations and/or in the value of the securities we are registering, and could cause the value of our securities to significantly decline or become worthless. We currently expect to fund our operations primarily through cash generated from our existing business operations and, as appropriate, through future capital raising activities. To the extent additional capital is required to support the research and development, commercialization or expansion of our planned quantum-enabled artificial intelligence, post-quantum cryptography or other new business initiatives, including any strategic acquisitions or collaborations, our ability to successfully pursue such initiatives may depend in part on our ability to access the capital markets. If governmental actions or regulatory restrictions were to limit, delay or prevent us from conducting future securities offerings, our ability to obtain additional financing could be adversely affected, which could in turn delay or limit the development, commercialization or expansion of our planned new business activities.

Changes in political, economic and other policies of the PRC government could have a material adverse effect on the overall economic growth of the PRC, which could reduce the demand for products offered by Hupan Pharmaceutical, and therefore adversely affect our financial results.

The PRC government has implemented various measures to promote economic development and regulate the allocation of resources. Although some of these measures may benefit the PRC economy generally, they may adversely affect Hupan Pharmaceutical’s medical product wholesale and distribution operations.

Prior to February 12, 2026, we operated as a U.S.-based integrated cross-border supply chain solutions provider with a strategic focus on the Asian market, including China, through ABL Chicago, and were also engaged in the distribution of pharmaceutical products in China through Hupan Pharmaceutical. On February 12, 2026, we transferred the operations of ABL Chicago to an unrelated third party, which obtained operational control and substantially all economic interests associated with the business. Following the transfer, we ceased substantive involvement in ABL Chicago’s operations. Accordingly, the operations of ABL Chicago were classified as discontinued operations in our consolidated financial statements. The disposal represents a strategic shift in our business operations and allows management to further streamline resources and focus on the development and expansion of our pharmaceutical distribution business.

Our continuing operations are focused on the distribution of pharmaceutical products in China through Hupan Pharmaceutical. Revenue from continuing pharmaceutical operations was primarily derived from infusion products, specialty prescription drugs, and medical nutrition products. We procure products from manufacturers, store the products at designated warehouses, and distribute them to hospitals, distributors and other healthcare providers, primarily through agents. The Company operates within a highly regulated healthcare environment and generates revenue through sales to distributors, hospitals, and clinics.

Beginning in September 2026, the Company, through its indirectly wholly owned subsidiary, XDT Infrastructure I, LLC, a Delaware limited liability company, commenced activities relating to the provision of artificial intelligence compute capacity and managed inference services. Under this business model, the Company’s subsidiary procures, owns and operates servers and related computing infrastructure for its own account, and makes capacity on that infrastructure available to customers as a service. Capacity allocated to a customer is logically and operationally segregated from capacity allocated to other customers, with the level of segregation depending on the applicable customer arrangement. Customers may specify the artificial intelligence models to be deployed on the capacity allocated to them, subject to technical compatibility, licensing and other applicable requirements, as well as the Company’s operation of the underlying infrastructure. XDT’s role is primarily to provide and operate the underlying computing infrastructure and managed inference environment. As of the date of this report, the Company does not plan to develop or train proprietary AI models and does not use customer-provided content to train models unless separately authorized by the applicable customer.

The Company continually evaluates potential opportunities to expand and diversify its business operations. Smart Reserve Holding LTD and Smart Reserve Inc were formed in connection with the Company’s preliminary evaluation of potential opportunities relating to digital asset business activities. As of the date of this report, the Company has not commenced any such business and has not adopted any concrete operational plan relating thereto. Any future expansion initiatives may be affected by factors including market conditions, capital availability, regulatory developments, operational execution, technological requirements, and management resources.

The Company’s results of operations for the period reflect the performance of its continuing pharmaceutical distribution business, and accordingly, prior period results have been recast to present the disposed business as discontinued operations where applicable. Management evaluates the performance of the continuing operations based on revenue growth, gross margin, operating efficiency, and working capital.

Regulatory Environment in China

The pharmaceutical industry in China is subject to extensive government regulation, including pricing controls, tendering processes, and reimbursement policies. Government initiatives, such as centralized procurement programs and healthcare reforms, may affect product pricing, sales volumes, and margin levels.

Supplier and Manufacturer Relationships

The Company relies on relationships with pharmaceutical manufacturers and suppliers for product sourcing. Changes in supply terms, pricing arrangements, or product availability may impact revenue and gross margins.

Customer Concentration and Hospital Demand

A significant portion of the Company’s sales is generated from hospitals and large distributors. Purchasing patterns, tender cycles, and changes in hospital demand or procurement policies can lead to fluctuations in revenue. During the year ended June 30, 2026, we have generated revenue from the distribution of pharmaceutical products from 63 customers, of which, four customers took over 10% of the revenue.

Pricing Pressure and Competition

The Company operates in a competitive market with pressure from both domestic and international pharmaceutical distributors. Competitive pricing dynamics and participation in government bidding processes may compress margins.

Product types and composition

During the year ended June 30, 2026, the pharmaceutical products we distribute mainly consist of infusion drugs, specialty foods, and therapeutic drugs. The profitability level of different products varies, and the proportion of various products affects our gross profit level.

Accounts receivable collection

The current payment term provided by us to our main customers is between 0-90 days; while the payment term from the supplier is 60 days. There is also a situation of prepaying payment to the supplier. If the accounts receivable cannot be collected in a timely manner or there are identifiable uncollectible balances, our cash flow in operating activities may be negatively affected.

Foreign Currency Fluctuations

As the Company operates primarily in China while reporting in United States Dollar (“USD”), fluctuations in foreign exchange rates, particularly between the Renminbi and the reporting currency, may impact reported revenue and profitability.

Prior to the disposition of our cross-border logistics business in February 2026, we also generate revenues primarily by providing customized cross-border ocean freight solutions and airfreight solutions to customers that specifically cater to their requirements and needs in transporting goods into the U.S. Under the service agreements with our customers, we offer a wide variety of integrated services under our cross-border ocean freight solutions and cross-border airfreight solutions, including (i) cross-border freight consolidation and forwarding services, (ii) customs clearance services, (iii) warehousing and distribution services and (iv) U.S. domestic ground transportation services.

Write-off of supplier advance: The expense consists of the write-off of an advance payment made to a supplier for inventory intended for a new business initiative.

Provision of allowance for expected credit loss on loan receivable: The expense consists of the allowance recognized for expected credit losses on loans receivable from third parties, based on the borrowers’ creditworthiness, repayment history, current financial condition and relevant economic factors.

Prior to February 12, 2026, we operated as a U.S.-based integrated cross-border supply chain solutions provider with a strategic focus on the Asian market, including China, through ABL Chicago, and were also engaged in the distribution of pharmaceutical products in China through Hupan Pharmaceutical. On February 12, 2026, we transferred the operations of ABL Chicago to an unrelated third party, which obtained operational control and substantially all economic interests associated with the business. Following the transfer, we ceased substantive involvement in ABL Chicago’s operations. Accordingly, the operations of ABL Chicago were classified as discontinued operations in our condensed consolidated financial statements. The disposal represents a strategic shift in our business operations and allows management to further streamline resources and focus on the development and expansion of our pharmaceutical distribution business.

Our continuing operations are focused on the distribution of pharmaceutical products in China through Hupan Pharmaceutical. Revenue from continuing pharmaceutical operations was primarily derived from infusion products, specialty prescription drugs, and medical nutrition products. We procure products from manufacturers, store the products at designated warehouses, and distribute them to hospitals, distributors and other healthcare providers, primarily through agents. The Company operates within a highly regulated healthcare environment and generates revenue through sales to distributors, hospitals, and clinics.

The Company continually evaluates potential opportunities to expand and diversify its business operations. Smart Reserve Holding LTD and Smart Reserve Inc were formed in connection with the Company’s preliminary evaluation of potential opportunities relating to digital asset business activities. As of the date of this report, the Company has not commenced any such business and has not adopted any concrete operational plan relating thereto. Any future expansion initiatives may be affected by factors including market conditions, capital availability, regulatory developments, operational execution, technological requirements, and management resources.

The Company’s results of operations for the period reflect the performance of its continuing pharmaceutical distribution business, and accordingly, prior period results have been recast to present the disposed business as discontinued operations where applicable. Management evaluates the performance of the continuing operations based on revenue growth, gross margin, operating efficiency, and working capital.

Regulatory Environment in China

The pharmaceutical industry in China is subject to extensive government regulation, including pricing controls, tendering processes, and reimbursement policies. Government initiatives, such as centralized procurement programs and healthcare reforms, may affect product pricing, sales volumes, and margin levels.

Supplier and Manufacturer Relationships

The Company relies on relationships with pharmaceutical manufacturers and suppliers for product sourcing. Changes in supply terms, pricing arrangements, or product availability may impact revenue and gross margins.

Customer Concentration and Hospital Demand

A significant portion of the Company’s sales is generated from hospitals and large distributors. Purchasing patterns, tender cycles, and changes in hospital demand or procurement policies can lead to fluctuations in revenue. During the nine months ended March 31, 2026, we have generated revenue from the distribution of pharmaceutical products from 59 customers, of which, four customers took over 10% of the revenue.

Pricing Pressure and Competition

The Company operates in a competitive market with pressure from both domestic and international pharmaceutical distributors. Competitive pricing dynamics and participation in government bidding processes may compress margins.

Product types and composition

During the nine months ended March 31, 2026, the pharmaceutical products we distribute mainly consist of infusion drugs, specialty foods, and therapeutic drugs. The profitability level of different products varies, and the proportion of various products affects our gross profit level.

Accounts receivable collection

The current payment term provided by us to our main customers is between 60-90 days; while the payment term from the supplier is 60 days. There is also a situation of prepaying payment to the supplier. If the accounts receivable cannot be collected in a timely manner or there are identifiable uncollectible balances, our cash flow in operating activities may be negatively affected.

Foreign Currency Fluctuations

As the Company operates primarily in China while reporting in United States Dollar (“USD”), fluctuations in foreign exchange rates, particularly between the Renminbi and the reporting currency, may impact reported revenue and profitability.

Continuing Operation

Our continuing operations are focused on the distribution of pharmaceutical products in China. Revenue from continuing pharmaceutical operations was primarily derived from infusion products, specialty prescription drugs, and medical nutrition products. The Company operates within a highly regulated healthcare environment and generates revenue through sales to hospitals through agent, and other healthcare providers.

Discontinued Operation

ABL Chicago is a U.S.-based integrated cross-border supply chain solution provider with a strategic focus on the Asian market including China. We primarily provide customized cross-border ocean freight solutions and airfreight solutions in the U.S. that specifically cater to our customers’ requirements and needs in transporting goods into the U.S. We offer a wide variety of integrated services under our cross-border ocean freight solutions and cross-border airfreight solutions, including (i) cross-border freight consolidation and forwarding services, (ii) customs clearance services, (iii) warehousing and distribution services and (iv) U.S. domestic ground transportation services.

On February 12, 2026, the sale of 100% of the issued and outstanding shares of ABL Chicago was duly approved and adopted by the Company’s shareholders. Accordingly, the Company consummated the transfer of the ABL Chicago business. Immediately prior to the Transaction, the Company forgave $3,402,808 of amounts due from The Company recorded a gain on the sale of the ABL Chicago business in the amount of $2,556,315 as follows: