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

Historically, a substantial part of our sales was attributed to a limited number of customers. But we had no sales to a customer greater than 10% of our total sales in 2024 and one customer accounted for 18%greater than 10% of our total sales in 2023.2025 and no customer accounted for greater than 10% of our total sales in 2024. If the demand for our products decreases in one or more of the markets supplied by our largest customers, or if there are any material social or regulatory changes in these markets, our sales could decline and we could lose market share, any of which could materially harm our business. We do not foresee relying on these same customers for sales generation as we expand our business to increase our internet sales and direct sales to the U.S. and other international markets. We cannot assure you, however, that we will be able to successfully implement these plans.

We rely heavily on the expertise, experience and continued services of our senior management, including our Chief Executive Officer, President, DirectorOfficer and Chairperson, Ms. Lam, and our Chief Financial Officer, Mr. Chuang.Officer. Loss of their services could adversely affect our ability to achieve our business objectives. Ms.Our Lam and Mr. Chuangexecutive officers are key factors in our success at establishing relationships within the furniture industry in the U.S. and international market and capital market because of their extensive industry and financial experience. The continued development of our business depends upon their continued employment. We have entered into employment agreements with Ms.our LamChief Executive Officer and Mr. ChuangChief Financial Officer that include provisions for non-competition and confidentiality.

We compete in the U.S. market principally through our sales under the Diamond Sofa brand. The furniture industry in the U.S. is very competitive and fragmented. We compete with many domestic U.S. and international furniture sources, including national department stores, regional or independent specialty stores, dedicated franchises of furniture manufacturers and retailers marketing products through catalogs and over the internet. There are few barriers to entry in the U.S. furniture market, and new competitors may enter this market at any time. Some of our competitors have greater financial resources than we have and often offer extensively advertised and well-recognized branded products. We may not be able to meet price competition or otherwise respond to competitive pressures in the U.S. market. We also may not be able to continue to differentiate our products from those of our competitors in the U.S. through value, styling and functionality because of the large number of competitors and their wide range of product offerings. Furthermore, some large furniture retailers in the U.S. are sourcing products directly from furniture manufacturers located in China and other Southeast Asian countries instead of through distributors like us. Over time, this practice may expand to smaller retailers in the U.S. Accordingly, we are continually subject to the risk of losing U.S. market share, which may decrease our future sales and earnings. Because we source products from third party manufacturers that are located outside the U.S. and we are subject to risks caused by disruption of international transportation such as COVID-19 and other health pandemics as well as the increase of tariffs imposed by the U.S. customs. We might losslose business and our reputation might be damaged if there is delay of delivery and shipment from our suppliers.

Our dependence on foreign suppliers and our increased global operations subject us to a variety of risks and uncertainties that could impact our operations and financial results.

We depend on vendors for timely and efficient access to products we sell. We source our products from manufacturers located outside the U.S., primarily Asia. Since 2017, the U.S. and China have been engaged in a trade dispute that has involved a number of actions against against China including the imposition of tariffs on Chinese imports. On February 1, 2025, Since February 1, 2025, President Trump issued executive orders imposing a 25%additional tariff on furniture products imported from CanadaChina which is currently between 27% and Mexico (initially suspended for 30 days) and a 10% tariff on products imported from China, effective February 4, 2025. An additional 10% increase in the China tariffs became effective March 4, 2025. Tariffs on imports from Canada and Mexico became effective March 4, 2025, but were later subject to broad exemptions effective March 7, 2025.70%. The previous tariffs on products from Chinese have resulted in a material impact on our business and results of operations, and we have switched to source certain products from the suppliers in other Asia countries than China, these new tariffs or any additional actions, such as “reciprocal” tariffs on U.S. trading partners to address trade imbalances, could negatively impact our ability and the ability of our third-party vendors and suppliers to source products from foreign jurisdictions, which could lead to an increase in the cost of goods and adversely affect the Company’s profitability. Tariffs passed on to consumers through higher prices can also negatively impact consumer confidence and discretionary spending.

From time to time, we may be a defendant in lawsuits and regulatory actions relating to our business. Due to the inherent uncertainties of litigation and regulatory proceedings, we cannot accurately predict the ultimate outcome of any such proceedings. An unfavorable outcome could have a material adverse effect on our business, financial condition and results of operations. In addition, any significant litigation, regardless of its merits, could divert management’s attention from our operations and may result in substantial legal costs. The Company has been named in a putativesettled securities class action case and two derivatives cases,cases in early 2025, details See Item 3 Legal Proceedings. While the Company believes it has adequate defenses, the defense of those cases are costly and could significantly divert management attention from its business.

We are a holding company with no material assets other than the stock of our wholly owned subsidiaries, Diamond Bar, Nova Furniture, Nova Samoa, Nova Samoa Malaysia and NovaXmax Malaysia.Capital. We rely on dividends paid by our subsidiaries for our cash needs, including the funds necessary to pay dividends dividends and other cash distributions to our shareholders, to service any debt we may incur and to pay our operating expenses. If our subsidiaries are unable to pay us dividends and make other payments to us when needed because of regulatory restrictions or otherwise, we may be materially and adversely limited in our ability to make investments or acquisitions that could be beneficial to our business, pay dividends or otherwise fund and conduct our business.

Political tensions between the United States and China have escalated due to, among other things,including trade disputes and tariffs, the COVID-19 outbreak, sanctions imposed by the U.S. Department of Treasury on certain officials of the Hong Kong Special Administrative Region and the central government of the PRC and the executive orders issued by then U.S. President that prohibit certain transactions with certain Chinese companies and their applications.tariffs. Rising political tensions could reduce levels of trades, investments, technological exchanges and other economic activities between the two major economies, which would have a material adverse effect on global economic conditions and the stability of global financial markets. Any of these factors could have a material adverse effect on our business, prospects, financial condition and results of operations. Controversies may arise in the future between these twoThe countries. These controversies also could make it more difficult for us to provide our products to our customers in the U.S. and China. The international trade policies of China and the U.S. couldhave adversely affectaffected our business, and the imposition of trade sanctions sanctions relating to imports, taxes, import duties and other charges on imports from China, including those applied specifically to furniture furniture products, or the imposition of taxes, import duties or other charges on exports to the U.S. willhave increaseincreased our costs and decreased decrease our earnings. Due to an increase in tariffs imposed by the U.S., some customers are seeking alternative resources instead of China, which has negatively affected the purchase orders and our sales as we mainly resource our products from China. In order to avoid avoid these new tariffs, the market has shifted towards an uncertain era. The Company started to source certain of its new products from from manufacturers in India in 2020. SalesHowever, duringdue thisto stagethe mayquality alsoissue beand impactedrecent increase and change of tariff announced by thisPresident Trump shift in behavior. The U.S. government previously has the increased tariffs of 25% for the furnitureon products from China,India and itother alsosoutheastern imposedAsian countries, we still purchase most of our products from China. Implementation of a 10%relocation tariffof onmanufacturing products(which by necessity includes an assessment of the factory’s ability to deliver importedthe fromquantity China,of effectivethe February 4, 2025. An additional 10% increaseproduct, in accordance with the ChinaCompany’s tariffsspecifications, becameand effectivein Marchaccordance 4,with 2025.the Company’s Thesequality newcontrol tariffsrequirements) oris anytime-consuming additionaland actions,has a lot of uncertainties such as “reciprocal”the tariffsincrease onof U.S.the tradingtariff partnersof the products from these countries, and only a small portion of suppliers manufacturing our products has been transitioned from China to address tradeMalaysia imbalances, could negatively impact our ability and theIndia abilitystarting in 2020. Most of our third-party vendors and suppliers to source products from foreign jurisdictions, which could lead to an increase in the cost of goods and adversely affect the Company’s profitability. Tariffs passed on to consumers through higher prices can also negatively impact consumer confidence and discretionary spending. During this time period wemanufacturing will continue to seekbe alternativesperformed in China because the good quality and newthe intellectual resourcesknow-how necessary to increasemanufacture thecertain revenue.products is not generally available in other Asian countries. If and to the extent we are not able to mitigate the effects of such trade or tariff policies, our operations may be adversely affected.

On December 16, 2021, the PCAOB issued its determinations (the “Determination”) that they are unable to inspect or investigate investigate completely PCAOB-registered public accounting firms headquartered in mainland China and in Hong Kong. The Determination includes lists of public accounting firms headquartered in mainland China and Hong Kong that the PCAOB is unable to inspect or investigate completely. Centurion ZDThe Company’s current auditor Enrome LLP is headquartered in Hong KongSingapore and wasis includednot inon the PCAOB Determinations. list.

Our Articles of Incorporation, as amended, authorize the issuance of up to 250,000,0005,000,000,000 shares of common stock, par value $0.001 per share. As of MarchApril 28,10, 2025,2026, there were 236,792,6784,952,793,773 authorized and unissued shares of our common stock available for future issuance, based on 13,207,32247,206,227 shares of our common stock issued and outstanding. Although we have no commitments as of the date of this report to issue our securities, we may issue a substantial number of additional shares of our common stock or debt securities to complete a business combination or to raise capital. OnWe Octoberplan 13,to 2023, we renewedfile a shelf registration statement on Form S-3 under which we may, from time to time, sell securities in one or more offerings up to a total dollar amount of $55,000,000. The shelf registration statement was declared effective as of October 23, 2023.offerings.

XMax Inc. (the “Company”), formerly known as Nova LifeStyle, Inc.Inc., is a distributor of contemporary styled residential and commercial furniture incorporated into a dynamic marketing and sales platform offering retail as well as online selection and global purchase fulfillment. We monitor popular trends and products to create design elements that are then integrated into our product lines that can be used as both stand-alone or whole-room and home furnishing solutions. Through our globalits network of retailers, e-commerce platforms, stagers and hospitality providers, Novathe LifeStyleCompany also sells (through an exclusive third-party manufacturing partner) a managed variety of high quality bedding foundation components.

NovaThe LifeStyle’sCompany’s brand family currently includes Nova LifeStyle, Diamond Sofa (www.diamondsofa.com) and Nova Living.

Our customers principally consist of distributors and retailers with specific geographic territories that deploy middle to high end private label home furnishings which have very little competitive overlap with our specific furnishing products or product lines. Novathe LifeStyleCompany is constantly seeking to integrate new sources of distribution and manufacturing that are properly aligned with our growth strategy. This allows us to continually focus on building both our overall distribution and manufacturing relationships through a deployment of popular, as well as trend-based, furnishing solutions worldwide.

We are a U.S. holding company with no material assets in the U.S. other than the ownership interests of our wholly owned subsidiaries through which we market, design and sell residential and commercial furniture worldwide: Nova Furniture Limited domiciled in the British Virgin Islands (“Nova Furniture”), Nova Furniture Ltd. domiciled in Samoa (“Nova Samoa”), Diamond Bar Outdoors, Inc. domiciled in California (“Diamond Bar”), Nova Living (M) SDN. BHD. domiciled in Malaysia (“Nova Malaysia”), andNova Nova Living (HK) Group Limited domiciled in Hong Kong (“Nova HK”). We also have a wholly owned subsidiary Xmax Capital Ltd. domiciled in Samoa and its wholly owned subsidiaries Xmax Alpha Holdings Ltd. (the “Xmax Alpha”), Xmax Beta Holdings Ltd., Xmax Delta Holdings Ltd. and Xmax Sigma Holdings Ltd., all domiciled in the Cayman Islands. The Company had three former subsidiaries Bright Swallow International Group Limited domiciled in Hong Kong (“Bright Swallow” or “BSI”) which was sold in January 2020, and Nova Furniture Macao Commercial Offshore Limited domiciled in Macao (“Nova Macao”) which was de-registration and liquidation in January 2021. In February 2022, Nova HK entered a de-registration process and transferred all its assets and business to Nova Malaysia. The process of de-registration and liquidation of Nova HK was completed in February 2023.

On December 7, 2017, we incorporated i Design Blockchain Technology, Inc. (“i Design”) under the laws of the State of California. The purpose of i Design is to build our own blockchain technology team. i Design is in the planning stage and has had minimum operations to date. On December 12, 2019, we became the sole shareholder of Nova Living (M) SDN. BHD. (“Nova Malaysia”), a company incorporated on July 26, 2019 under the laws of Malaysia. Nova Malaysia marketed and sold high-end physiotherapeutic jade mats for use in therapy clinics, hospitality, and real estate projects in Malaysia and other regions in Southeast Asia. Due to the negative impact caused by COVID-19, we eventually sold the entire jade mats inventory in liquidation sales in June 2023 and existed from Jade Mats business.

On November 5, 2020, Nova LifeStyle, Inc. acquired Nova Living (HK) Group Limited (“Nova HK”) at cost of $1,290 which was incorporated in Hong Kong on November 6, 2019. ThisNova companyHK took over Nova Macao’s business upon its deregistration, however, it had minimalminimum operations.operations in 2021. In February 2022, Nova HK entered a de-registration process and transferred transferred all its assets and business to Nova Malaysia. The process of de-registration and liquidation of Nova HK was completed in February 2023.

We do not have access to a revolving credit facility. On May 4, 2020, the Company received loan proceeds in the amount of approximately $139,802 under the Paycheck Protection Program (“PPP”). The PPP, established as part of the Coronavirus Aid, Relief and Economic Economic Security Act (“CARES Act”), provides for loans to qualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses of the qualifying business. On May 5, 2020, Diamond Bar Outdoors Inc. (“Diamond Bar”) was granted a loan from Cathay Bank in the aggregate amount of $176,294, pursuant to the Paycheck Protection Program. On June 19, 2020, Diamond Bar was granted a U.S. Small Business Administration (SBA) loan in the aggregate amount of $150,000, pursuant to the Economic Injury Disaster Loan. In July 2021, we completed a registered direct offering of our shares of common stock and received offering gross proceeds of $3,120,622. In May 2024, August 2024 and October 2024, we completed three private placements for gross proceeds of $750,000. During the fiscal year of 2025, the Company completed three private placements for gross proceeds of $500,000, a public offering for proceeds of $9 million, two registered direct offerings for approximately $19 million and a convertible note financing for $5 million. The Company also repaid $217,000 debt with its shares of common stock, $6,503 to director and $3,441 to SBA loan for the year ended December 31, 2025. We currently believe that our financial resources will be adequate to finance our operations in the next 12 months. However, in the event that we do need to raise capital in the future, the instability in the securities markets could adversely affect our ability to raise additional capital.

On April 18, 2024, the Company received written notice from the NASDAQ stating that the Company does not meet the requirement of maintaining a minimum of $2,500,000 in stockholders’ equity for continued listing on the NASDAQ Capital Market, as set forth in NASDAQ Listing Rule 5550(b)(1), the Company also does not meet the alternative of market value of listed securities of $35 million under NASDAQ Listing Rule 5550(b)(2) or net income from continuing operations of $500,000 in the most recently completed fiscal year or in two of the last three most recently completed fiscal years under NASDAQ Listing Rule 5550(b)(3), and the Company is no longer in compliance with the NASDAQ Listing Rules. The NASDAQ notification letter provided the Company until June 6, 2024 to submit a plan to regain compliance. If the plan is accepted, NASDAQ can grant the Company an extension up to 180 calendar days from the date of NASDAQ letter to demonstrate compliance. The Company submitted its plan of compliance on May 28, 2024 and a supplemental letter to the plan of compliance on June 20, 2024. Based on the review of the letters submitted by the Company, Staff has determined to grant the Company an extension until October 14, 2024 to regain compliance with the Rule and the Company must complete its initiatives and provide evidences for the compliance with the Rule as required by Nasdaq. On October 11, 2024, the Company and Nova Samoa have entered into orders to purchase inventories in total amount of $4,600,000, which will be paid in 3,321,429 shares (“Shares”) of common stock of the Company at US$1.40 per share.share Asas ofdisclosed in the dateForm of8-K filed by the report,Company with SEC on October 11, 2024 (the “Form 8-K”). The Company believes it has regained compliance with the stockholders’ equity requirement based upon the specific transaction referenced. Nasdaq will continue to monitor the Company’sTransaction. ongoingBased complianceon the Form 8-K, staff of NASDAQ (“Staff”) has determined that the Company complies with the stockholders’Listing Rule 5550(b)(1). However, as noted in its letter dated, equityJune requirement27, and,2024, if atthe Company fails to evidence compliance upon filing its next periodic report covering the timeperiod of thisthe transaction which is the annual report of the Company doesfor notthe evidenceyear compliance,ended thatDecember 31, 2024 (“2024 Form 10-K”), it may be subject to delisting. At that time, Staff will provide written notification to the Company, which may then appeal Staff’s determination to a Hearings Panel. The Company filed its 2024 Form 10-K on March 31, 2025 and has not received any written notification of non-compliance from Nasdaq as of the day of this report.

On December 27, 2024, the Company received a letter from Nasdaq notifying the Company that, because the closing bid price for the Company’s Company’s common stock listed on Nasdaq was below $1.00 for 30 consecutive trading days, the Company no longer meets the minimum bid price requirement for continued listing on Nasdaq under Nasdaq Marketplace Rule 5550(a)(2), which requires a minimum bid price of $1.00 per share (the “Minimum Bid Price Requirement”). The Company has a period of 180 calendar days from the date of notification, until June 25, 2025 (the “Compliance Period”), to to regain compliance with the Minimum Bid Price Requirement. IfOn atMay any27, time before2025, the expirationCompany ofreceived a written notification from the ComplianceNASDAQ PeriodStock theMarket bid priceListing ofQualifications theStaff Company’s common stock closes at or above $1.00 per share for a minimum of 10 consecutive business days, Nasdaq will provide written notificationindicating that the Company has achievedregained compliance with the $1.00 minimum closing bid price requirement for continued listing on the NASDAQ Capital Market pursuant to NASDAQ Listing Rule 5550(a)(2) (the “Minimum Bid Price Requirement. If the Company does not regain compliance by the end of the Compliance Period, the Company may be eligible for an additional 180 calendar day period to regain compliance. To qualify, the Company will be required to meet the continued listing requirement for market value of publicly held shares and all other initial listing standards for The Nasdaq Capital Market, with the exception of the bid price requirement,Requirement”) and will need to provide written notice of its intention to cure the deficiency during the second compliance period by effecting a reverse stock split, if necessary. However, if it appears to Nasdaq that the Company will not be able to cure the deficiency, or if the Companymatter is otherwise notnow eligible, Nasdaq will provide notice that the Company’s securities will be subject to delisting.closed.

Since 2019, we have moved away from low margin products and this move was intended to improve our gross profit margin, receivable collections and net profitability, and to increase our return on long-term equity. We terminated sales and marketing efforts to customers that represented a high purchase volume but low profit margin, and we adjusted our product line, which included the launch of our Summer 2023 Collection in the Las Vegas and High Point Markets, with a view to attracting a higher-end ultimate customer. The core focus of the Company’s direction today is entirely centered on our products.products, Identifyingidentifying a fashion-driven generational shift in the general perception and consumption of furniture andfurniture, being more aware of actual consumer tastes and how best to fulfill and and engage that need.need, Closelyand closely integrating product development alongside marketing results in appealing products that adheres to the scope of our target demographic of decision makers in the design, staging and retail fields. A process that is continually refined upon each release cycle, maintaining a singular, cohesive vision. In short, we have better identified our customers and how to cater to them – in the process gaining greater traction with every product launch considerably more so on an international level than ever previous. We believe these new strategies,strategies will provide us with significant long term growth opportunities. Significant factors that we believe could affect our operating results are the (i) prices of our products to our domestic and international retailer and wholesaler customers and their markups to end consumers; (ii) general economic conditions in the U.S., Chinese, and other international markets; and (iii) trade war and tariffs imposed by the United States on certain products manufactured in China and other Asian countries where we purchase our products; and (iv) high interest rate, inflation and slow- down in real estate market. We believe most of our customers are willing to pay for our high quality and stylish products, timely delivery, and strong production capacity at price levels which we expect will allow us to maintain a relatively high gross profit margin for our products. We do not manufacture our products, but instead we utilize third-party manufacturers. In response to the tariffs imposed by the United States on products manufactured in China, we arehave been in the process of seeking and shifting a portion of our product manufacturing from third-party manufacturers located in China to third-party manufacturers located in other parts of Asia, such as Vietnam, India and/or Malaysia, countries unaffectedwith lower tariffs. However, due to the quality issue and recent increase of tariff announced by thePresident tariffs.Trump on products from India and other southeastern Asian countries, we still purchase most of our products from China. Implementation of a relocation of manufacturing (which by necessity includes an assessment of the factory’s ability to deliver the quantity of the product, in accordance with the Company’s specifications, and in accordance with the Company’s Company’s quality control requirements) is time-consuming,time-consuming butand has a lot of uncertainties such as the increase of the tariff of the products from these countries, and only a small portion of suppliers manufacturing our products has been transitioned from China to Malaysia and India starting in 20202020. and we expect that more of our manufacturing will be transitioned to one or more of these venues. SomeMost of our manufacturing will continue to be performed in China because the good quality and the intellectual know-how necessary to manufacture certain products is not generally available in other Asian countries. Consumer preference trends favoring high quality and stylish products and lifestyle-based furniture suites should also allow us at least to maintain our gross profit margins. The markets in North America isare challenging because such markets are experiencing a slow-down and may be entering a recession due to high interest rate and inflation.

The accompanying audited consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for NovaXMax LifeStyleInc. and its subsidiaries, Diamond Bar, i Design, Nova BVI, Furniture, Nova Samoa, Nova Malaysia and XMax Capital and its former subsidiary, Nova HK.subsidiaries.

On SeptemberNovember 5,3, 2023,2025, the Company filed thea Certificate of Change (the “Share Increase Amendment”) with the Secretary of State for the State of Nevada to amend its Articles of Incorporation to increase the amount of authorized shares of its common stock, par value $0.001 per share, from 3,000,000250,000,000 shares to 250,000,000.5,000,000,000 shares. The Share Increase Amendment was approved by the Company’s Board of Directors (the “Board”) on JuneSeptember 28,15, 20232025 and by the shareholders at a special meeting of the Company’s shareholders held on AugustOctober 31, 2023.2025. The Share Increase Amendment does not affect the rights of the Company’s shareholders and was effective immediately upon filing.

InThe preparation preparing consolidatedof financial statements in conformity with U.S. GAAP,GAAP managementrequires makesto make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosuresdisclosure of contingent assets and liabilities asat the date of the dates of the consolidated financial statements,statements as well asand the reported amounts of revenues and expenses during the reporting period. SignificantActual results could differ from those estimates. On an ongoing basis, management reviews these estimates and assumptions madeusing bythe managementcurrently include,available information. Changes in facts and circumstances may cause the Company to revise its estimates. In accordance with ASC 250, the changes in estimates will be recognized in the same period of changes in facts and circumstances. The Company bases its estimates on past experiences and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Estimates are used when accounting for items and matters including, but are not limited to, revenuefair recognition,value estimation of investment, the allowance for badcredit debt,loss, valuation valuation of inventories, the valuation of stock-based compensation, income taxes and unrecognized tax benefits, valuation allowance for deferred tax assets, assumptions used in assessing impairment of long-lived assets and goodwill, and loss contingencies. Actual results could differ differ from those estimates.

XMax Inc. (Nova Lifestyle, Inc.) and Diamond Bar are subject to U.S. federal and state income taxes. Nova Furniture BVI was incorporated in the BVIBVI, and Nova Samoa and Xmax Capital was incorporated in Samoa. Xmax Alpha Holdings Ltd, Xmax Beta Holdings Ltd, Xmax Delta Holdings Ltd and Xmas Sigma Holdings Ltd were incorporated in Caymen Island. There is no income tax for companies domiciled in the BVI, Cayman Islands and Samoa. Accordingly, the Company’s audited consolidated financial statements do not present any income tax tax provisions related to the BVIBVI, Cayman Islands and Samoa tax jurisdictions where Nova FurnitureBVI, BVINova Samoa, Xmax Capital, Xmax Alpha Holdings Ltd, Xmax Beta Holdings Ltd, Xmax Delta Holdings Ltd and NovaXmax SamoaSigma Holdings Ltd are domiciled. Nova Malaysia is incorporated in Malaysia and is subject to Malaysia income taxes at the statutory rate of 24%. Nova Living (HK) Group Limited (“Nova HK”) is incorporated in Hong Kong and is subject to Hong Kong income taxes at the statutory rate of 16.5%. In February 2022, Nova HK was deregistered.

As of December 31, 2025 and 2024, the accumulated undistributed earnings generated by its foreign subsidiaries were approximately $21.7 million 22.2and $22.2 million of which substantially all was previously subject to U.S. tax, the one-time transition tax on foreign unremitted earnings required by the Tax Act, or GILTI. Those earnings are considered to be permanently reinvested and accordingly, no deferred tax expense is recorded for U.S. federal and state income tax or applicable withholding taxes.

A reconciliation of unrecognized tax benefits excluding interest and penalties (“Gross UTB”) for the nine monthsyears ended December 31, 20242025 and 2023,2024, is as follows:

XMax Inc. (Nova Lifestyle) and Diamond Bar are subject to U.S. federal and state income taxes and tax years 2020-2024 remain open to examination by tax authorities in the U.S.

We generally expense sales commissions when incurred because the amortization period would have been one year or less. These costs are recorded within selling expenses on our auditedunaudited consolidated statements of operations.

The accompanying auditedunaudited consolidated financial statements are presented in United States Dollar (“$” or “USD”), which is also the functional currency of XMax Inc. (formerly Nova LifeStyle, Inc.), XMax Alpha, Nova Furniture, Nova Samoa, Diamond Bar, and i Design.

Net salesSales to customers by geographic area are determined by reference to the physical product shipment delivery locations requested by our customers. For example, if the products are delivered to a customer in the U.S., the sales are recorded as generated in the U.S.; if the customer directs us to ship its products to China, the sales are recorded as sold in China.

ln December 2023, the FASB issued Accounting Standards Update No.2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” (“ASU 2023-09”), which modifies the rules on income tax disclosures to require entities to disclose (1) specific categories in the rate reconciliation,(2) the income or loss from continuing operations before income tax expense or benefit (separated between domestic and foreign) and (3)income tax expense or benefit from continuing operations (separated by federal, state and foreign). ASU 2023-09 also requires entities to disclose their income tax payments to international, federal, state and local jurisdictions, among other changes. The guidance is effective for annual period beginning after December 15, 2024. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. ASU 2023-09 should be applied on a prospective basis, but retrospective application is permitted. The Company is currently evaluating the potential impact of adopting this new guidance on its auditedunaudited consolidated financial statements and related disclosures.

Net Sales

Net salesSales for the year ended December 31, 20242025 were $9.69$16.72 million, aan decreaseincrease of 13%73% from $11.09$9.69 million for the same year of 2023.2024. This increase decrease in net sales resulted primarily from 39%102% decreaseincrease in salesaverage volume,selling price, while partially offset by 43%15% increasedecrease in averagesales sellingvolume. price. Our three largest selling product categories for the year ended December 31, 20242025 were sofas,marbles bedsslabs, sofa and coffee tables, which accounted for approximately 50%,47%, 13%30% and 8%5% of sales, respectively. For the year ended December 31, 2023,2024, the three largest selling categories were sofa,sofas, jade mats,beds and beds,coffee tables, which accounted for approximately 37%,50%, 18%13% and 13%8% of sales, respectively.

The following discussion and analysis are based upon our financial statements as of the dates and for the periods presented in this section. You should read this discussion and analysis in conjunction with the financial statements and notes thereto found in Part I, Item 1 of this Form 10-Q and our consolidated financial statements and notes thereto included in our annual report on Form 10-K for the fiscal year ended December 31, 2025 (the “2025 Form 10-K”). All references to the firstsecond quarter and first threesix months of 2026 and 2025 mean the three-month periods ended MarchJune 31,30, 2026 and 2025. In addition to historical information, the following discussion and other other parts of this report contain certain forward-looking information. When used in this discussion, the words, “believes,” “anticipates,” “expects” and similar expressions are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties, which could cause actual results to differ materially from projected results, due to a number of risks, uncertainties and factors beyond our control. We do not undertake to publicly update or revise any of these forward-looking statements, even if experience or future changes show that the indicated results or events will not be realized. Furthermore, we cannot guarantee future results, events, levels of activity, performance, or achievements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. Readers also are urged to carefully review and consider our discussions regarding the various factors that affect the company’s business, which are described in this section and elsewhere in this report. For more information, see our discussion of risk factors located at Part I, Item 1A of our 2025 Form 10-K.

The Company’s brand family currently includes XMAX, XMAX AI, Nova LifeStyle, Diamond Sofa (www.diamondsofa.com) and Nova Living.

We are a U.S. holding company with no material assets in the U.S. other than the ownership interests of our wholly owned subsidiaries through through which we market, design and sell residential and commercial furniture and provide AI software and platform-based services. Our subsidiaries include Nova Furniture Limited domiciled in the British Virgin Islands (“Nova Furniture”), Nova Furniture Ltd. domiciled in Samoa (“Nova Samoa”), Diamond Bar Outdoors, Inc. domiciled in California (“Diamond Bar”), Nova Living (M) SDN. BHD. domiciled in Malaysia (“Nova Malaysia”), Nova Living (HK) Group Limited domiciled in Hong Kong (“Nova HK”). We also have a wholly owned subsidiaries Xmax AI Inc. incorporated in Nevada and its wholly owned subsidiary Elonx AI Holdings PTE. LTD. domiciled in Singapore (“Elonx AI”), and Xmax Capital Ltd. domiciled in Samoa and its wholly owned subsidiaries Xmax Alpha Holdings Ltd. (the “Xmax Alpha”), Xmax Beta Holdings Ltd., Xmax Delta Holdings Ltd. and Xmax Xmax Sigma Holdings Ltd., all domiciled in the Cayman Islands. The Company had three former subsidiaries Bright Swallow International Group Limited domiciled in Hong Kong (“Bright Swallow” or “BSI”) which was sold in January 2020, and Nova Furniture Macao Commercial Offshore Limited domiciled in Macao (“Nova Macao”) which was de-registration and liquidation in January 2021. In February 2022, Nova HK entered a de-registration process and transferred all its assets and business to Nova Malaysia. The process of de-registration and liquidation of Nova HK was completed in February 2023.

We do not have access to a revolving credit facility. On May 4, 2020, the Company received loan proceeds in the amount of approximately $139,802 under the Paycheck Protection Program (“PPP”). The PPP, established as part of the Coronavirus Aid, Relief and Economic Economic Security Act (“CARES Act”), provides for loans to qualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses of the qualifying business. On May 5, 2020, Diamond Bar Outdoors Inc. (“Diamond Bar”) was granted a loan from Cathay Bank in the aggregate amount of $176,294, pursuant to the Paycheck Protection Program. On June 19, 2020, Diamond Bar was granted a U.S. Small Business Administration (SBA) loan in the aggregate amount of $150,000, pursuant to the Economic Injury Disaster Loan. During the fiscal year of 2025, the Company completed three private placements for gross proceeds of $500,000, a public offering for proceeds of $9 million, two registered direct offerings for approximately $19 million and a convertible note financing for $5 million. The Company also repaid $217,000 debt with its shares of common stock, $6,503 to director and $3,441 to SBA loan for the year ended December 31, 2025. During the first quarter of 2026, the Company also made one registered direct offering for approximately $36 million and one private placement for approximately $7 million. During the second quarter of 2026, the Company made three private placements for approximately $37.6 million. We currently believe that our financial resources will be adequate to finance our operations in the next 12 months. However, in the event that we do need to raise capital in the future, the instability in the securities markets could adversely affect our ability to raise additional capital.

On April 1, 2026, the Company incorporated XMax AI Inc. in the State of Nevada. On April 6, 2026, XMax AI Inc. (“XMax AI”) entered into an AI Inference Platform Deployment and Service Agreement (the “Agreement”) with Cloud Alliance Inc. (the “Service Provider”), effective as of April 1, 2026. Pursuant to the Agreement, the Service Provider will develop and deploy an AI inference platform (“Platform”) to the Amazon Web Services (AWS) cloud environment designated by the Company for a total fixed service fee of US$400,000.

The core focus of the Company’s furniture business today is entirely centered on our products, identifying a fashion-driven generational shift in the general perception and consumption of furniture, being more aware of actual consumer tastes and how best to fulfil and engage that need, and closely integrating product development alongside marketing results in appealing products that adheres to the scope of our target demographic of decision makers in the design, staging and retail fields. A process that is continually refined upon each release cycle, maintaining a singular, cohesive vision. In short, we have better identified our customers and how to cater to them – in the process gaining greater traction with every product launch considerably more so on an international level than ever previous. In addition, we have been developing AI software and platform-based services to provide provide our customers access to XMax’s artificial intelligence models through API-based (Application Programming Interface) services. services. These services are provided via our recently deployed AI platform, enabling the customer to integrate, distribute, and commercialize commercialize these capabilities globally under its own branding. Our platform supports high availability and scalable deployment, enabling enabling customers to efficiently integrate advanced AI capabilities into their commercial applications. We believe these new strategies have provided new revenues and will continue to provide us with significant long-term growth opportunities.

The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally generally accepted in the United States of America (“U.S. GAAP”) for XMax Inc. and its subsidiaries, Diamond Bar, i Design, Nova BVI, Nova Samoa, Nova MalaysiaMalaysia, XMax AI, Inc. Elonx AI, and XMax Capital and its subsidiaries.

We maintained an allowance for expected credit loss of $379$343 and $258 as of MarchJune 31,30, 2026 and December 31, 2025, respectively. During the threesix months ended MarchJune 31,30, 2026 and 2025, expected credit losses provision was $121$85 and $287,($6), respectively.respectively; and $($36) and ($293) for the three months ended June 30, 2026 and 2025. As of MarchJune 31,30, 2026, we had gross receivable of $2,457,617$2,454,042 of which $2,424,846$2,419,747 was over 90 days past due.

XMax Inc. (formerly Nova Lifestyle, Inc.) and, Diamond Bar Outdoors, Inc. (“Diamond Bar”), and XMax AI Inc. are subject to U.S. federal and state income taxes. Nova BVIFurniture Limited was incorporated in the BVI,British Virgin Islands; Nova SamoaFurniture Ltd. and Xmax Capital wasLtd. were incorporated in Samoa.Samoa; and Xmax Alpha Holdings Ltd,Ltd., Xmax Beta Holdings Ltd, Ltd., Xmax Delta Holdings LtdLtd., and XmasXmax Sigma Holdings LtdLtd. were incorporated in Caymenthe Island.Cayman Islands. There is no income tax for companies domiciled in the BVI, British Virgin Islands, Samoa, or the Cayman Islands and Samoa.Islands. Accordingly, the Company’s unaudited condensed consolidated financial statements do not present any income tax provisionsprovision related to the BVI,British Virgin Islands, Samoa, or Cayman Islands and Samoa tax jurisdictions where Nova BVI, Nova Samoa, Xmax Capital,these Xmax Alpha Holdings Ltd, Xmax Beta Holdings Ltd, Xmax Delta Holdings Ltd and Xmax Sigma Holdings Ltdentities are domiciled. Elonz AI Holdings Pte. Ltd. was incorporated in Singapore during the second quarter of 2026 and is subject to Singapore corporate income tax. Accordingly, the Company records a Singapore income tax provision, when applicable. Nova MalaysiaLiving isLtd. was incorporated in Malaysia and ceased business operations.operations; Novathe Malaysiaentity completed its de-registration with the Malaysian government in the first quarter of 2026.

The Tax Cuts and Jobs Act of 2017 (the “Act”) created new taxes on certain foreign-sourced earnings such as global intangible low-taxed income (“GILTI”) under IRC Section 951A, which is effective for the Company for tax years beginning after January 1, 2018. For tax years beginning after December 31, 2025, the One Big Beautiful Bill Act renamed GILTI as net CFC tested income (“NCTI”) and modified the Section 951A calculation. For the quarter ended MarchJune 31,30, 2026, the Company has calculated its best estimate of the impact of NCTI, if any, in its income tax provision in accordance with applicable tax law and guidance available as of the date of this filing.

The Tax Cuts and Jobs Act of 2017 also amended IRC Section 174 to require specified research and experimental expenditures to be capitalized and amortized for tax years beginning after December 31, 2021. The One Big Beautiful Bill Act subsequently restored current expensing for domestic research and experimental expenditures paid or incurred in tax years beginning after December 31, 2024, while foreign research and experimental expenditures remain subject to capitalization and amortization over 15 years. For the threesix months ended MarchJune 31,30, 2026, the Company expensed current-year U.S. research and experimental expenditures for federal income tax purposes. The Company did not elect to accelerate the deduction of unamortized domestic research and experimental expenditures from prior years and continues to amortize such amounts over the remaining applicable amortization period. Since the Company’s research and experimental expenditures were incurred within the United States and the amount is immaterial, the Company does not anticipate a material impact to its income tax provision.

As of MarchJune 31,30, 2026 and December 31, 2025, the accumulated undistributed earnings generated by its foreign subsidiaries were approximately $21.7 $21.8 million and $21.7 million of which substantially all was previously subject to U.S. tax, the one-time transition tax on foreign unremitted earnings required by the Tax Act, GILTI, or NCTI, as applicable. Those earnings are considered to be permanently reinvested reinvested and accordingly, no deferred tax expense is recorded for U.S. federal and state income tax or applicable withholding taxes.

As of MarchJune 31,30, 2026, unrecognized tax benefits were were approximately $0. The total amount of unrecognized tax benefits that, if recognized, would favorably affect the effective tax rate was was $0nil as of MarchJune 31,30, 2026. As of MarchJune 31,30, 2025, unrecognized tax benefits were approximately $0. The total amount of unrecognized tax tax benefits that, if recognized, would favorably affect the effective tax rate was $0nil as of MarchJune 31,30, 2025.

A reconciliation of unrecognized tax benefits excluding interest and penalties (“Gross UTB”) for the threesix months ended MarchJune 31,30, 2026 and 2025, is as follows:

As of MarchJune 31,30, 2026 and December 31, 2025, the Company had cumulatively accrued approximately $0nil and $0nil for estimated interest and penalties related to unrecognized tax benefits. The Company recorded interest and penalties related to unrecognized tax benefits as a component of income tax (benefit)/expense, which totaled $0nil and $0nil for the six months ended June 30, 2026 and 2025, respectively; and nil and nil for the three months ended MarchJune 31, 202630, 2026, and 2025, respectively; and $0 and $0 for the three months ended March 31, 2025, and 2024, respectively, related to the Company’s continuing operations. The Company does not anticipate any significant changes to its unrecognized tax benefits within the next 12 months.

XMax Inc. (formerly Nova LifestyleLifestyle, Inc.), Diamond Bar, XMax AI and DiamondI BarDesign are subject to U.S. federal and state income taxes and tax years 2020-2024 remain open to examination by tax authorities in the U.S.

WeThe recognizeCompany recognizes revenues when ourits customercustomers obtainsobtain control of promised goods or services, in an amount that reflects the consideration which which it expects to receive in exchange for those goods. WeThe recognizeCompany recognizes revenues following the five stepfive-step model prescribed under ASC-606: ASU No. 606: (i) identifyidentifies contract(s) with a customer; (ii) identifyidentifies the performance obligations in the contract; (iii) determinedetermines the transaction transaction price; (iv) allocateallocates the transaction price to the performance obligations in the contract; and (v) recognizerecognizes revenues when (or as) we satisfyit satisfies the performance obligation.

Product revenue reserves, which are classified as a reduction in product revenues, are generally characterized in the following categories: discounts, returns and rebates. These reserves are based on estimates of the amounts earned or to be claimed on the related sales and are classified as reductions of accounts receivable as the amount is payable to ourthe Company’s customer.

OurThe Company’s sales policy allows for theproduct return of productreturns within the warranty period if the product is defective and the defects are ourthe Company’s fault. As alternatives forto the product return option, the customers have the option of asking us forrequesting a discount from the Company for products with quality issues, issues or of receiving replacement parts from usthe Company at no cost. The amount of reserves for returnproduct of products, returns, the discount provided to the Company’s customers, and costthe costs for the replacement parts were immaterial for the three months ended June March 31,30, 2026 and 2025.

The accompanying unaudited consolidated financial statements are presented in United States Dollar (“$” or “USD”), which is also the functional currency of XMax Inc.XMAX (formerly Nova LifeStyle, Inc.LifeStyle), XMax Capital, XMax Alpha, XMax Beta, Nova Furniture, Nova Samoa, Diamond Bar, XMax AI, Elonx AI, I Design, Xmax Capital, Xmax Alpha Holdings Ltd, Xmax Beta Holdings Ltd, Xmax Delta Holdings Ltd and iXmax Design.Sigma Holdings Ltd.

The Company’s subsidiarysubsidiaries with operations in Singapore and Malaysia usesuse itstheir local currency, the Singapore Doller (“SGD”) and Malaysian Ringgit (“RM”), as its functional currency. An entity’stheir functional currencycurrency. isThe entities’ functional currencies are the currency of the primary economic environment in which itthey operates,operate, which isare normally the currencycurrencies of the environment in which the entity primarily generates and expends cash. Management’s judgment is essential to determine the functional currency by assessing various indicators, such as cash flows, sales price and market, expenses, financing and inter-company transactions and arrangements.

The financial statements are presented in U.S. dollars. Assets and liabilities are translated into U.S. dollars at the current exchange rate in effect at the balance sheet date, and revenues and expenses are translated at the average of the exchange rates in effect during the reporting period. Stockholders’ equity accounts are translated using the historical exchange rates at the date the entry to stockholders’ equity was recorded, except for the change in accumulatedretained deficitsearnings during the period, which is translated using the historical exchange rates used to translate each period’s income statement. Differences resulting from translating functional currencies to the reporting currency are recorded in accumulated other comprehensive income in the balance sheets.

On July 4, 2025, the U.S. H.R.1, an act to provide for reconciliation pursuant to title II of H. Con. Res. 14. (the “OBBBA”) was enacted. The OBBBA introduces multiple tax law and other legislative changes, including modifications to income tax provisions such as domestic research and development expenses, capital expenditures, and U.S. taxation of international earnings; the repeal or acceleration of the sunset of certain tax credits under the 2022 Inflation Reduction Act and elimination of certain penalties for violations of certain regulatory credit programs. We have recognized the effects of the OBBBA provisions in our financial results to the extent they are applicable to the three months ended MarchJune 31,30, 2026. We will continue to evaluate the impact of these provisions on our 2026 and subsequent consolidated financial statements, including loss of certain regulatory credit sales tied to our products and changes to the costs of our products.

Comparison of Three Months Ended MarchJune 31,30, 2026 and 2025

The following table sets forth the results of our operations for the three months ended MarchJune 31,30, 2026 and 2025.

Sales for the three months ended MarchJune 31,30, 2026 were $1.78$2.74 million, aan decrease increase of 32%7% from $2.64$2.56 million for the same period of 2025. Sales, excluding our API-based service revenue, for the three months ended June 30, 2026 were $1.64 million, a decrease of 36% from $2.56 million for the same period of 2025. This decrease in sales resulted primarily from 36.92%35.13% decrease in sales volume,volume whileand partially1.17% offset by 7.16% increasedecrease in average selling selling price. Our three largest selling product categories for the three months ended MarchJune 31,30, 2026 were sofa, bedscoffee tables and coffeebeds, which tables, which accounted for approximately 58%,59%, 11%12% and 10%11% of sales, respectively. For the three months ended MarchJune 31,30, 2025, the three largest selling selling categories were sofas, chairscoffee tables and beds, which accounted for approximately 55%,54%, 10% and 9% of sales, respectively.

The $0.86$0.92 million decreasedecreases in sales for the three months ended MarchJune 31,30, 2026, compared to the same period of 2025, was mainly due to decreased sales to North America. Sales to North America decreased by 32%36% to $1.78$1.64 million for the three months ended MarchJune 31,30, 2026, compared to to $2.62$2.56 million for the same period of 2025, such decrease mainly due to decrease in sales volume by 37%35% and 1% in average selling price from the customers in North America. Sales to other countries decreased by $0.02 million to $1,519 for the three months ended March 31, 2026, from $0.02 million for the same period of 2025, primary due to less sales order received from our customers in other countries.

Cost of sales consists primarily of costs of finished goods and materials purchased from third-party manufacturers.manufacturers and API-based fee. Total cost of sales decreased increased by 37%29% or $0.37 million to $0.90$1.64 million for the three months ended MarchJune 31,30, 2026, compared to $1.43$1.27 million for the same period of 2025. Cost of sales as a percentage of sales decreasedincreased to 50% 60% for the three months ended MarchJune 31,30, 2026, compared to 54%50% for the same period of 2025. The decrease increase in cost of sales in dollar term and in cost of sales as a percentage of sales are a result of sellingexpanding morenew productsAI business to our customers. Our API-based fee was increased 100% to $1.20 million from nil in the same period of 2025. Our API-based fee was occupied 73% of our total cost of sales for the three months ended June 30, 2026, compared with higher profit0% margins.for the same period of 2025.

Gross profit was $0.88$1.09 million for the three months ended MarchJune 31,30, 2026, compared to $1.28 million for the same period of 2025, representing a decrease in gross profit of $0.19 million. Our gross profit margin was 40% for the three months ended June 30, 2026, compared to $1.2050% for the same period of 2025. The gross profit, excluding API-based service revenue, was $1.19 million for the three months ended June 30, 2026, compared to $1.28 million for the same period of 2025, representing a decrease in gross profit of $0.32$0.10 million. Our gross profit marginmargin, excluding API-based service revenue, was 50%73% for the three months ended MarchJune 31,30, 2026, compared to 46% 50% for the same period of 2025. The decrease in gross profit in dollar term was mainly due to a result of less sales. The increase in gross profit in percentage was mainly due to selling more products with higher profit margin.

Operating expenses consisted of selling, general and administrative expenses, and research and development. Operating expenses were $1.42$2.31 million for the three months ended DecemberJune 31,30, 2026, compared to $1.40$1.48 million for the same period of 2025. Selling expenses increaseddecreased by 13%, 6%, or $0.04$0.02 million, to $0.37$0.29 million for the three months ended MarchJune 31, 30, 2026, from $0.33 million for the same period of 2025, primarily due to increased marketing and advertising expenses. Also, general and administrative expenses decreased by 2%, or $0.02 million, to $1.05 million for the three months ended March 31, 2026, from $1.07$0.31 million for the same period of 2025, primarily due to adecreased decrease in accountingmarketing and auditingadvertising expenses. Also, general and administrative expenses increased by 72%, or $0.85 million, to $2.02 million for the three months ended June 30, 2026, from $1.17 million for the same period of 2025, primarily due to an increase in cloud service fee of $0.04$0.40 million and consultingfiling fee of $0.11$0.13 million, while the decrease was partially offset by ana increase decrease in legal and professionalauditing fee of $0.08$0.04 million, consulting fee of $0.07 million and travel expense of $0.02 $0.03 million.

Other income, net was $0.73$41.46 million for the three months ended MarchJune 31, 30, 2026, compared to other expense, net of $0.21$0.09 million for the same period of 2025, representing an increase in other income of $0.94 $41.55 million. The increase in other income was due primarily to an increase in unrealized gain of $0.79$42.12 million from the investment in the fund of Preamble.

Income Tax (expense) Benefit (Expense)