{"url_path":"/sec/vtix/10-k/2026/item-7","section_key":"item-7","section_title":"Item 7 Management’s Discussion and Analysis of Financial","topic":"sec","document":{"doc_type":"10-K","doc_date":"2026-06-25","source_url":"https://www.sec.gov/Archives/edgar/data/1606242/0001213900-26-072079-index.html","accession_number":"0001213900-26-072079","cik":"0001606242","ticker":"VTIX","issuer_name":"Virtuix Holdings Inc.","edgar_url":"https://www.sec.gov/Archives/edgar/data/1606242/0001213900-26-072079-index.html","primary_entity_key":"0001606242","primary_entity_name":"Virtuix Holdings Inc."},"word_count":9649,"has_tables":true,"body_markdown":"Item 7. Management’s Discussion and Analysis of Financial\nCondition and Results of Operations.\n\n \n\nCautionary Note Regarding Forward-Looking\nStatements\n\n \n\nAll statements other than\nstatements of historical fact included in this Report including, without limitation, statements under this Item regarding our financial\nposition, business strategy and the plans and objectives of Management for future operations, are forward-looking statements. When used\nin this Report, words such as “anticipate,” “believe,” “estimate,” “expect,” “intend”\nand similar expressions, as they relate to us or our Management, identify forward-looking statements. Such forward-looking statements\nare based on the beliefs of our Management, as well as assumptions made by, and information currently available to, our Management. Actual\nresults could differ materially from those contemplated by the forward-looking statements as a result of certain factors detailed in\nour filings with the SEC. All subsequent written or oral forward-looking statements attributable to us or persons acting on our behalf\nare qualified in their entirety by this paragraph.\n\n \n\nThe following discussion and analysis of our financial condition and\nresults of operations should be read in conjunction with the audited consolidated financial statements and the notes thereto included\nin this Report under “Item 8. Financial Statements and Supplementary Data”.\n\n \n\nOverview and History\n\n \n\nVirtuix pioneers movement\nin AI-generated worlds, whether imaginary or real, through the development of omni-directional treadmills that enable natural locomotion\nwithin VR games, digital twins, and other applications. Since our founding in 2013, we have introduced three generations of products\nto market, generating over $20 million in cumulative sales. Our flagship product, Omni One, represents a breakthrough in home entertainment,\ncombining full-body movement with immersive VR gaming and fitness. We operate a vertically integrated business across product design,\ngame development, manufacturing, and distribution, with a focus on three key markets: consumer, enterprise, and defense.\n\n \n\nOur earlier products, Omni\nPro and Omni Arena, established our footprint in commercial VR. We’ve sold more than 4,000 Omni Pro systems for enterprise,\ninstalled 80 Omni Arena systems at entertainment venues in the U.S., and built an Omni Arena player base of over 500,000 players who\nsigned up with an email address to play. Omni One, our most recent product, is designed for the home consumer and supports full freedom\nof movement, including crouching, kneeling, and jumping, within popular VR games. In addition, we sell a version of Omni One for enterprise\nmarkets and, in parallel, we are developing VTW, a multi-user mission planning system targeted at the defense market.\n\n \n\nWe derive revenue through a combination\nof hardware sales and recurring software and service income. These include:\n\n \n\n \n●\nOmni One hardware sales, with pricing ranging from $2,495 to\n$2,995.\n\n \n\n \n●\nOmni Online subscription service ($14/month or $140/year), offering\nmultiplayer access, esports leaderboards, and free games.\n\n \n\n \n●\nGame sales via Omni One’s proprietary game store.\n\n \n\n \n●\nEnterprise solutions, including Omni One Enterprise and Omni\nArena systems.\n\n \n\n \n●\nAccessory and replacement parts sales for Omni One and Omni\nArena systems.\n\n \n\n \n●\nOmni Care maintenance subscriptions for Omni Arena.\n\n \n\n \n●\nOmniverse Credits for Omni Pro and Omni Arena gameplay (per-minute\nusage fees).\n\n \n\nWe target a gross margin\nof up to 40% on hardware sales of Omni One, Omni One for Quest, Omni One Core, and second-hand Omni Arena systems, and 70% gross margin\non Omni One Enterprise hardware sales. Recurring revenue from Omni Online, game sales, Omni Care, and Omniverse Credits provide high-margin,\npredictable cash flows that recur after initial hardware sales.\n\n \n\nSince inception, we have\noperated at a loss, with revenues of $4,252,643 and $3,590,438 for the years ended March 31, 2026 and 2025, respectively. Our net losses\nwere $(16,799,253) and $(14,648,792) for the years ended March 31, 2026 and 2025, respectively. We anticipate continued operating losses\nas we pursue market penetration and revenue growth in 2027.\n\n \n\n10\n\n \n\nKey milestones for achieving\nsustainable profitability include:\n\n \n\n \n●\nScaling Omni One consumer sales through increased marketing and increased\nadoption as part of the Made for Meta program.\n\n \n\n \n●\nSupplementing potentially high-volume Omni One consumer sales with\npotentially high-value defense contracts. We believe a “dual-use” strategy of building consumer sales plus defense\ncontracts can position us for achieving revenue growth and sustainable profitability.\n\n \n\nVTW is still in development.\nWe presented a proof-of-concept of VTW to potential customers at the I/ITSEC conference in Orlando, Florida, in December 2025, and we\nalready sold Omni One test units to the U.S. Air Force Academy, YokoWERX (the innovation cell at Yokota Air Force Base), and the U.S.\nMilitary Academy at West Point. We also got selected for Phase 1 SBIR Funding by the U.S. Air Force to advance the development of VTW,\nand we got selected to be the lead integrator on the development of a VR infantry training system by the U.S. Marine Corps Training and\nEducation Command (TECOM). However, we expect that meaningful sales in the defense sector may not materialize until fiscal year 2027\nat the earliest. Despite the long sales cycle for penetrating the defense market, we believe that VTW will retain a strong competitive\nmoat because of our expansive omni-directional treadmill patent portfolio, our position as a U.S. company, and the inherent barriers\nto entry for defense applications that competitors will face, including multi-year procurement cycles and high switching costs. To sell\nVTW, we will need to comply with certain requirements and regulations to qualify for government contracts or awards, depending on the\ntype of contract or award, including but not limited to compliance with the FAR and DFARS, Export Administration Regulations, cybersecurity\nregulations, and requirements and restrictions related to the secure sourcing of components, including the Buy American Act and Berry\nAmendment. For additional information, see “Risk Factors *— Our business with governmental entities will be subject to\nthe policies, priorities, regulations, mandates and funding levels of such governmental entities and may be negatively or positively\nimpacted by any change thereto*” of our Prospectus dated January 26, 2026. The development of VTW is part of our already ongoing\nR&D efforts and expenditures, and we do not foresee a meaningful increase in operational costs resulting from VTW.\n\n \n\nFollowing our shift in R&D\nand marketing efforts to Omni One, and the shift in demand for entertainment attractions from staffed VR attractions such as Omni Arena\nto unstaffed, lower-tech offerings, we consider the Omni Arena business to be in sustaining mode. We no longer produce new systems or\ninvest in new games or software upgrades for the system, but we continue to support our existing Omni Arena operators and earn recurring\nrevenues from Omni Care maintenance contracts, Omniverse Credits sales, and the sale of repair and replacement parts. We also facilitate\nsecondary market sales of Omni Arena systems and earn a target gross margin of approximately 40% on revenues earned from reselling second-hand\nsystems and disassembling, moving, and installing such systems.\n\n \n\nOur path to profitability\nrelies on scaling Omni One sales at an acceptable CAC and on gaining adoption of VTW for immersive mission planning in the defense sector.\nAlthough we believe that our plans are realistic, there is no guarantee that we will be able to scale Omni One sales or find product-market\nfit in the defense sector.\n\n \n\nWe believe Virtuix is well\nplaced at the intersection of immersive gaming, fitness, and enterprise VR, and at the leading edge of the development of hyper-realistic\ndigital twins of the real world through Gaussian splatting and other AI-driven 3D reconstruction technologies. In a world where AI is\nused to rapidly generate realistic virtual environments, whether imaginary game worlds or digital twins of the real world, we pioneer\nthe technology and products for physically moving around in these virtual environments. We believe we are positioned to help define the\nnext decade of VR advancements and be a leader in immersive gaming and simulation.\n\n \n\n11\n\n \n\nFactors Affecting our Business and Results\nof Operations\n\n \n\nThis section includes a\nsummary of our historical results of operations, including detailed comparisons of our results for the years ended March 31, 2026 and\n2025. We have derived the data from our financial statements included elsewhere in this Report.\n\n \n\nResults of Operations\n\n* *\n\n*Fiscal Year 2026 Compared to Fiscal Year\n2025*\n\n* *\n\n*Net Revenues*\n\n \n\nNet sales for the year ended March 31, 2026, were\n$4,252,643, an 18% increase from sales of $3,590,438 for the year ended March 31, 2025. This increase is primarily attributable to new\nsales of Omni One, including resulting from a strong 2025 holiday season, whereas sales in the prior year primarily stem from fulfillment\nof legacy Omni One preorders that were placed during our preorder period that ended in September 2024. In the year ended March 31,\n2026, net revenues of $405,656 were attributable to the fulfillment of outstanding Omni One preorders, with $264,990 of those net preorder\nrevenues resulting from sales to investors who used an investor discount. In the year ended March 31, 2025, net revenues of $2,104,446\nwere attributable to the fulfillment of Omni One preorders placed prior to fiscal year 2025, with $1,391,201 of those net preorder revenues\nresulting from sales to investors who used an investor discount.\n\n \n\nThe following table summarizes\nour revenue by product line:\n\n \n\n  \nYear Ended\nMarch 31,\n2026  \nYear Ended\nMarch 31,\n\n2025 \n\nSALES \n   \n  \n\nOmni Pro units and accessories, net of discounts \n$162,592  \n$60,041 \n\nOmniverse Credits \n 137,143  \n 214,257 \n\nOmni Care program \n 175,333  \n 130,990 \n\nOmni Arena \n 653,491  \n 429,927 \n\nOmni One, net of discounts \n 2,732,009  \n 2,755,223 \n\nResale activity \n 392,075  \n   \n\nTOTAL NET SALES \n$4,252,643  \n$3,590,438 \n\n* *\n\n*Cost of Goods Sold*\n\n \n\nCost of goods sold primarily\nconsists of material costs and shipping costs of Omni One and Omni Arena.\n\n \n\nCost of goods sold in the\nyear ended March 31, 2026 was $3,206,021, a decrease of $611,794 from cost of goods sold of $3,817,815 in the year ended March 31, 2025.\nThe decrease was primarily attributable to lower per-unit overhead costs recognized in the 2026 period compared to the 2025 period. Since\nshipments of Omni One only started ramping up in late 2024, manufacturing overhead incurred during the production ramp-up period in 2024\nwas absorbed into units shipped during the year ended March 31, 2025, resulting in a higher per-unit manufacturing cost. In contrast,\nmanufacturing and shipment activity during the year ended March 31, 2026 period was consistently higher, resulting in lower manufacturing\noverhead applied per unit.\n\n \n\n12\n\n \n\nGross profit in the year\nended March 31, 2026 increased by $1,273,999 compared to gross loss in the year ended March 31, 2025, and gross margin as a percentage\nof revenues increased from -6% in the year ended March 31, 2025 to 25% in the year ended March 31, 2026. This increase in gross margin\nwas the result of an increase in the selling price of the complete Omni One system from $2,595 to $3,495 plus shipping, effective since\nNovember 2024, a reduction in the per-unit manufacturing overhead cost, and the completion of the delivery of nearly all discounted\nunits to equity crowdfunding investors. In the year ended March 31, 2026, net revenues of $1,352,982 resulted from the delivery of discounted\nunits, and the aggregate value of all discounts totaled $256,491 for the same period.\n\n* *\n\n*Operating Expenses*\n\n \n\nOperating expenses consist\nof general and administrative expenses, which are primarily salaries, professional fees, and expenses related to the administrative functions\nof the Company, research and development expenses, which consist primarily of product development costs and salaries, and sales and marketing\nexpenses, which represent advertising and other marketing costs, as well as the associated personnel costs.\n\n \n\n  \nYear Ended\nMarch 31,\n2026  \nYear Ended\nMarch 31,\n2025 \n\nSelling Expenses \n$2,579,748  \n$1,645,147 \n\nGeneral & Administrative \n 7,940,232  \n 10,129,112 \n\nResearch & Development \n 845,994  \n 2,185,133 \n\nTotal Operating Expenses \n$11,365,974  \n$13,959,392 \n\n \n\nTotal operating expenses\ndecreased to $11,365,974 in the year ended March 31, 2026 from $13,959,392 in the year ended March 31, 2025.\n\n \n\n \n●\nSelling Expenses: For the year ended March\n31, 2026 compared to the same period in 2025, Selling Expenses increased to $2,579,748 from $1,645,147, with the increase in the\n2026 period largely driven by the significant digital ad spend for our Regulation Crowdfunding (“Reg CF”) investment\ncampaign with StartEngine that ended around the end of June 2025, as well as increased ad spend for Omni One during the 2025\nholiday season.\n\n \n\n \n●\nGeneral and Administrative Expenses: For the\nyear ended March 31, 2026 compared to the same period in 2025, General and Administrative Expenses decreased to $7,940,232 from $10,129,112,\nprimarily because the expenses in the year ended March 31, 2025 included a one-time non-cash stock-based compensation expense of\napproximately $4.7 million for the issuance of an incentive stock award to an advisor and Board member. Additionally, during\nthe year ended March 31, 2026, the Company experienced a decrease in salary expenditures and an increase in legal and professional\nfees, primarily attributable to costs associated with the Nasdaq uplisting process.\n\n \n\n \n●\nResearch and Development: For the year ended March 31, 2026 compared to the same period in 2025, Research and Development expenses decreased to $845,994 from $2,185,133. This drop was due to a decrease in R&D spend and staffing following the completion of Omni One.\n\n* *\n\n*Other Expense*\n\n \n\nFor the year ended March\n31, 2026, Other Expense totaled $6,354,643, primarily driven by $2,694,722 of non-cash financing expenses recognized in connection with\namendments to certain outstanding warrants, together with $2,821,899 of non-cash amortization of debt discounts associated with warrants\nissued in connection with debt financings and original issue discounts. For the year ended March 31, 2025, Other Expense totaled $368,120,\nprimarily comprised of interest expense on debt.\n\n* *\n\n**\n\n13\n\n* *\n\n*Net Loss*\n\n \n\nAs a result of the foregoing, net loss for the year ended March 31,\n2026 was $(16,799,253) compared to $(14,648,792) for the year ended March 31, 2025, representing an increase in net loss of $2,150,461.\nThe net loss for the year ended March 31, 2025 included a one-time non-cash stock-based compensation expense of approximately $4.7 million,\nand total non-cash stock compensation of $5.9 million, compared to non-cash stock-based employee compensation expense of approximately\n$441,000 for the year ended March 31, 2026. However, the net loss for the year ended March 31, 2026 included approximately $5.5 million\nof non-cash discount amortization and financing expenses associated with the Company’s debt and warrant financing activities, compared\nto no similar expenses during the year ended March 31, 2025.\n\n \n\nNon-GAAP Financial Measures\n\n \n\nManagement reviews a variety\nof operational and financial metrics to assess the Company’s performance, allocate resources, and inform strategic decision-making.\nIn addition to net sales, net loss, and other measures prepared in accordance with accounting principles generally accepted in the United\nStates (“GAAP”), this report includes certain operating metrics and non-GAAP financial measures that management considers\nmeaningful in evaluating the Company’s operating performance.\n\n \n\nThese measures are used\nby management and the Board of Directors to assess trends in the business, evaluate the effectiveness of operational initiatives, and\nsupport decisions regarding investment and cost management. Management believes that the presentation of these non-GAAP financial measures\nprovides investors with additional insight into the Company’s operating results and facilitates period-to-period comparisons.\n\n \n\n*Adjusted EBITDA*\n\n* *\n\n \n \nFor the Year Ended\nMarch 31,\n \n\n \n \n2026\n \n \n2025\n \n\n \n \n(Unaudited)\n \n\nReconciliation of GAAP net loss to Adjusted EBITDA\n \n \n \n \n \n \n\nNET LOSS\n \n$\n(16,799,253\n)\n \n$\n(14,648,792\n)\n\nPlus:\n \n \n \n \n \n \n \n \n\nTaxes\n \n \n125,258\n \n \n \n78,955\n \n\nInterest expense(1)\n \n \n3,543,037\n \n \n \n369,420\n \n\nDepreciation and amortization\n \n \n625,987\n \n \n \n482,389\n \n\nEBITDA\n \n$\n(12,504,971\n)\n \n$\n(13,718,028\n)\n\nPlus:\n \n \n \n \n \n \n \n \n\nStock-based compensation(2)\n \n \n1,676,960\n \n \n \n5,860,695\n \n\nFinancing Expense(3)\n \n \n2,694,722\n \n \n \n-\n \n\nLoss on extinguishment of debt\n \n \n122,864\n \n \n \n-\n \n\nADJUSTED EBITDA\n \n$\n(8,010,425\n)\n \n$\n(7,857,333\n)\n\n* *\n\n1.\nInterest expense for the year ended March 31, 2026 includes $2,821,899\nof non-cash amortization of debt discount related to secured promissory notes issued to Streeterville Capital, LLC (see Note 9 –\nNotes Payable to the Consolidated Financial Statements). The debt discount results from the issuance of warrants as well as original issue\ndiscount and related closing costs, which are being amortized to interest expense over the term of the notes.\n\n \n\n2.\nStock-based compensation expense for the year ended March 31, 2026 consisted of $1,235,009 related to equity awards granted to vendors and service providers and $441,951 related to equity awards granted to employees, officers, and directors. Stock-based compensation expense for the year ended March 31, 2025 consisted entirely of employee, officer, and director awards, including a one-time non-cash charge of approximately $4.7 million.\n\n \n \n\n3\nFinancing expense represents a one-time non-cash charge recognized in connection with amendments to certain outstanding warrants during the year ended March 31, 2026.\n\n \n\n14\n\n \n\nAdjusted EBITDA is a non-GAAP\nfinancial measure that we use to evaluate our operating performance. Adjusted EBITDA represents net income (loss), adjusted to exclude:\n(i) provision for (benefit from) income taxes, (ii) interest expense, net, (iii) depreciation and amortization, (iv) stock-based compensation\nexpense, (v) non-recurring financing expense, and (vi) loss on extinguishment of debt.\n\n \n\nWe believe Adjusted EBITDA\nis useful to investors because it provides a supplemental measure of our operating cash flow by excluding non-cash expenses and other\nitems that may not be indicative of our core operating results or that may vary significantly from period to period. For the periods\npresented, such non-cash items include amortization of debt discount, depreciation and amortization, and stock-based compensation expense,\nwhich can significantly impact reported net loss but does not impact our cash flow. However, Adjusted EBITDA has limitations and should\nnot be considered in isolation or as a substitute for financial information prepared in accordance with GAAP. These limitations include\nthe following:\n\n \n\n \n●\nStock-based compensation has been, and is expected to continue to be,\na significant recurring expense and an important component of our compensation strategy.\n\n \n\n \n●\nDepreciation and amortization relate to assets that may require replacement\nin the future, and Adjusted EBITDA does not reflect the cash requirements for capital expenditures.\n\n \n\n \n●\nAdjusted EBITDA does not reflect changes in working capital or the\ncash requirements necessary to service our debt.\n\n \n\n \n●\nOther companies, including companies in our industry, may calculate\nsimilarly titled non-GAAP measures differently, limiting their usefulness as comparative measures.\n\n \n\nAccordingly, Adjusted EBITDA\nshould be considered only as a supplement to, and not as a substitute for, net income (loss) and other measures prepared in accordance\nwith GAAP.\n\n \n\nLiquidity and Capital Resources\n\n \n\nWe continue to experience\nnegative cash flows from operations as we expand our business. Our cash flows from operating activities are significantly affected by\nour cash investments to support the growth of our business in areas such as sales and marketing, product development, and general and\nadministrative. Our operating cash flows are also affected by our working capital needs to support the scaling of manufacturing and inventories.\n\n \n\nAs of March 31, 2026 and\nMarch 31, 2025, the Company had cash on hand of $9,471,288 and $477,908, respectively. Since its inception, the Company has incurred\nnet losses and funded its operations primarily through the issuance of equity securities. As of March 31, 2026, the Company had a total\nstockholders’ equity of $3,048,103, and a stockholders’ deficit of $(794,035) as of March 31, 2025. The Company has incurred\nrecurring losses from operations, and as of March 31, 2026 and March 31, 2025, had an accumulated deficit of $(79,291,843) and $(62,492,590),\nrespectively.\n\n \n\nThe Company’s continued\nexistence is dependent upon its ability to continue to execute its operating plan and to obtain additional debt or equity financing.\nThe Company has developed plans to raise funds and continues to pursue sources of funding that management believes, if successful, would\nbe sufficient to support the Company’s operation and growth. As discussed in the Subsequent Events section of the Notes to the\nConsolidated Financial Statements, the Company has successfully executed sources of funding and debt conversions from April 2026 through\nJune 2026. Streeterville has exercised 230,000 warrants during this period, resulting in proceeds to the Company of $1,380,000. Streeterville\nhas also made partial redemptions in connection with the Exchange Agreement, resulting in principal debt reduction of $284,500. Additionally,\nwe entered into an agreement with Streeterville in which the three outstanding secured convertible promissory notes converted fully into\na second Pre-Paid Purchase, removing the upcoming maturity dates of the notes and terminating the secured notes’ lien on our assets.\n\n \n\n15\n\n \n\nDuring the twelve months\nended March 31, 2025, the Company raised the following proceeds from financing activities:\n\n \n\n \n●\n$3,598,805 through issuances of SAFE notes to accredited investors\nunder Regulation D of the Securities Act.\n\n \n\n \n●\n$2,999,051 through issuances of Series B preferred stock pursuant\nto a Reg CF campaign with StartEngine, an online equity crowdfunding platform, and to accredited investors under Regulation D of\nthe Securities Act.\n\n \n\n \n●\n$2,485,000 through issuances of unsecured promissory notes to accredited\ninvestors. Subsequently, outstanding notes with a principal amount of $117,500 were converted to Series B preferred stock during\nthe fiscal year ended March 31, 2025, and outstanding notes with a principal amount of $400,000 were converted to Series B preferred stock\nduring the fiscal year ended March 31, 2026.\n\n \n\nDuring the twelve months ended March\n31, 2026, the Company raised the following additional proceeds from financing activities:\n\n \n\n \n●\n$1,832,362 (net of investor and issuer fees) through issuances of Series\nB preferred stock pursuant to a Reg CF campaign with StartEngine, an online equity crowdfunding platform.\n\n \n\n \n●\n$112,990 through issuances of Series B preferred stock to accredited\ninvestors under Regulation D of the Securities Act.\n\n \n\n \n●\n$217,678 through issuances of unsecured promissory notes to two related\nparties, which was subsequently paid back in the same period. For additional information, see “*Certain Relationships and\nRelated-Party Transactions — Related-Party Promissory Notes.*”\n\n \n\n \n●\n$2,000,000 through the First Note Purchase Agreement with Streeterville,\npursuant to which Virtuix issued the First Note in the principal amount of $2,220,000.\n\n \n\n \n●\n$500,000 through the Second Note Purchase Agreement with Streeterville,\npursuant to which Virtuix issued the Second Note in the principal amount of $560,000.\n\n \n\n \n●\n$500,000 through the Third Note Purchase Agreement with Streeterville,\npursuant to which Virtuix issued the Third Note in the principal amount of $560,000.\n\n \n\n \n●\n$1,500,000 through issuances of subordinated promissory notes (the\n“Second 2025 Notes”), pursuant to which Virtuix issued notes totaling $1,650,000.\n\n \n\n \n●\n$8,000,000 through the initial advance of the PPP Agreement with Streeterville,\nwhich, per the August 25, 2025 Securities Purchase Agreement, was funded at the closing of the Company’s direct listing on\nJanuary 27, 2026.\n\n \n\n \n●\n$24,978 through exercise of stock options by a certain holder, pursuant\nto which Virtuix issued 10,720 shares of Class A common stock.\n\n \n\n \n●\n$7,564,115 through the exercise of warrants, pursuant to which Virtuix\nissued 1,703,035 shares of Class A common stock.\n\n \n\nAs an additional inducement\nfor certain investors to participate in our Series B preferred stock financing, we issued warrants to purchase shares of our common\nstock. At the time of issuance, these warrants were exercisable for an aggregate of 313,153 shares of common stock of Virtuix at an exercise\nprice of $0.01 per share. As of March 31, 2026, all 313,153 common stock warrants had been exercised.\n\n \n\n16\n\n \n\nIn association with various\nagreements to obtain financing with Western Technology Investment between September 2014 and April 2022, the Company has granted warrants\nto Western Technology Investment to purchase stock in Virtuix. These warrants were exercisable for an aggregate of 334,961 shares of\ncommon stock of Virtuix, of which 156,250 at an exercise price of $.80 per share, 128,646 at an exercise price of $2.332 per share, and\n50,066 at an exercise price of $2.996 per share. As of March 31, 2026, all 334,961 common stock warrants had been exercised.\n\n \n\nOn August 25, 2025, we entered into a Securities Purchase Agreement\nwith Streeterville, pursuant to which Virtuix issued the First Note in the principal amount of $2,220,000. The First Note includes an\noriginal issue discount of $200,000 and additional closing costs of $20,000. The First Note bears interest at a rate of 6% per annum,\nis secured by all assets of the Company, and matures nine months from the funding date. The Company received $2,000,000 in gross proceeds\nat closing. In addition, Streeterville received a common stock purchase warrant (the “Debt Financing Warrant”) to purchase\nup to a number of shares of our Class A common stock equal to $4,000,000 divided by the reference price established in connection with\nour direct listing, exercisable at the reference price and expiring six months after the closing of the direct listing. On October 30,\n2025, we entered into a Securities Purchase Agreement with Streeterville, pursuant to which we issued (i) the Second Note in the principal\namount of $560,000, bearing interest at 6% per annum and secured by substantially all of our assets and (ii) a common stock purchase warrant\nto purchase a number of shares of our Class A common stock equal to $1,000,000 divided by the reference price established in connection\nwith our direct listing. The Second Note includes an original issue discount of $50,000 and additional closing costs of $10,000. The Company\nreceived $500,000 in gross proceeds at closing of the Second Note. On December 19, 2025, we entered into a Securities Purchase Agreement\nwith Streeterville, pursuant to which we issued (i) the Third Note in the principal amount of $560,000, bearing interest at 6% per annum\nand secured by substantially all of our assets and (ii) a common stock purchase warrant to purchase a number of shares of our Class A\ncommon stock equal to $1,000,000 divided by the reference price established in connection with our direct listing. The Third Note includes\nan original issue discount of $50,000 and additional closing costs of $10,000. The Company received $500,000 in gross proceeds at closing\nof the Third Note.\n\n \n\nThe Streeterville Notes\nare convertible into shares of common stock at a price equal to 85% of the reference price established in connection with the Company’s\ndirect listing. The Streeterville Notes are our only secured debt. They contain customary events of default, including failure to make\npayments or deliver shares, and provide for increased interest and penalties in the event of default. The Streeterville Notes may be\nprepaid at a premium, subject to certain conditions, and are subject to ownership and selling limitations. The shares underlying the\nStreeterville Notes and warrants will be registered for resale in connection with our direct listing. Ten days following the date on\nwhich the Resale Registration Statement providing for the registration of shares issuable pursuant to the Equity Purchase Agreement is\ndeclared effective, the Streeterville Notes will automatically be exchanged for and applied to the purchase price of a pre-paid purchase\nunder the Equity Purchase Agreement in an aggregate principal amount equal to the outstanding balance then due under the Streeterville\nNotes.\n\n \n\nUnder applicable rules of\nthe Nasdaq Stock Market, in no event may the Company issue more than the number of shares of its common stock which equals 19.99% of\nthe pre-transaction common stock outstanding in a private transaction (the “Exchange Cap”) at a price less than the “Minimum\nPrice” (as defined in the Nasdaq 5600 Series listing rules), unless the Company first obtains stockholder approval to issue shares\nof common stock in excess of the Exchange Cap in accordance with applicable Nasdaq listing rules. Furthermore, pursuant to the Debt Financing\ntransaction documents, the Company must seek stockholder approval to exceed the Exchange Cap at its next annual or special meeting of\nstockholders. Accordingly, on January 21, 2026, the Company obtained stockholder approval to issue common stock, including the issuance\nof common stock upon conversion, exercise, or settlement of warrants, in an amount that may exceed 19.99% of the Company’s issued\nand outstanding common stock where the issue price is less than the Minimum Price.\n\n \n\nProceeds from the Debt Financing\nwere used to pay off existing indebtedness, including but not limited to retiring the Company’s only secured indebtedness outstanding\nprior to the Debt Financing, with the remaining proceeds used or to be used for working capital and general corporate purposes.\n\n \n\nOn August 25, 2025, we entered into the Equity Purchase Agreement with\nStreeterville, pursuant to which Streeterville committed to purchase up to $50,000,000 of Class A common stock through one or more prepaid\nadvances over a 24-month period. The initial advance of $8,000,000 (net of original issue discount) was funded at the closing of our direct\nlisting, with subsequent advances subject to certain conditions, including minimum market capitalization, trading volume, and compliance\nwith Nasdaq listing standards. Each advance includes an 8% original issue discount and bears interest at 6% per annum. Streeterville also\nreceived the Equity Financing Warrant. The conversion price for the advances is set at 120% of the reference price, with, subject to certain\ntriggers, an alternate conversion price based on 90% of the lowest volume-weighted average price during the ten trading days prior to\nconversion, subject to a $2.00 price floor. The Equity Purchase Agreement includes customary events of default, selling and ownership\nlimitations, Company covenants, and a prepayment option for the Company. The shares underlying the advances will be registered for resale\nfollowing our direct listing. The shares underlying the warrants will be registered for resale in connection with our direct listing.\n\n \n\n17\n\n \n\nWe may request advances\nup to an aggregate of $50,000,000 over the term of the Equity Purchase Agreement; however, Streeterville’s obligation to fund advances\nis not solely at the discretion of the Company. Each advance is subject to a number of conditions, including that our market capitalization\nis at least $95,000,000 and both our 20-day and 60-day median and average daily trading volumes are at least $350,000 at the time of\nany request for a subsequent advance. Additional requirements include compliance with continued listing standards and an effective registration\nstatement for the resale of shares issuable pursuant to the outstanding advances. If we fail to meet any of these conditions at the time\nof a request, Streeterville may decline to provide the requested funds. As a result, there is no assurance that we will be able to access\nthe full $50,000,000 or any specific amount under the Equity Purchase Agreement, and our ability to request subsequent advances may be\nlimited by market conditions, our performance, or other factors outside our control.\n\n \n\nIn October and November 2025, we issued unsecured promissory notes\n(the “Second 2025 Notes”) to investors in a transaction exempt from registration under Section 4(a)(2) of the Securities Act,\nand Rule 506(b) promulgated under Regulation D for total proceeds of $1,500,000. The Second 2025 Notes bear principal equal to 110% of\neach investor’s cash investment, accrue simple interest at 6.0% per annum, and mature on March 31, 2026 (as extended by the Company,\nin its sole discretion, from December 31, 2025). At or before maturity, the Company may repay the full outstanding principal and interest\nin cash or convert that amount into Common Stock at a price equal to 85% of the Nasdaq valuation price of $8.75; beginning on the date\nof our direct listing and continuing until full repayment, the noteholder may likewise elect to convert outstanding indebtedness at the\nsame conversion price. During January and March 2026, holders of certain 2025 Notes converted an aggregate of $797,500 in outstanding\nprincipal, $14,588 in accrued unpaid interest, and $25,000 of unamortized debt discount into an aggregate of 109,183 shares of the Company’s\nClass A common stock pursuant to the terms of the applicable notes. Upon conversion, the corresponding debt obligations were extinguished\nand reclassified to stockholders’ equity. No gain or loss was recognized in connection with the conversions. During the fiscal year\nended March 31, 2026, the Company also repaid an aggregate of $852,500 in outstanding principal and $21,943 in accrued unpaid interest\nto holders of certain 2025 Notes. As of March 31, 2026, the notes had no remaining balance.\n\n \n\nAs of March 31, 2026, our obligations include the Exchange Note issued\nto Streeterville Capital, LLC, with a principal amount of $2,681,718 maturing in July 2027, an EIDL loan with a carrying amount of approximately\n$24,500 maturing in August 2050, secured promissory notes issued to Streeterville Capital, LLC, convertible into shares of our Class A\ncommon stock, with an outstanding principal balance of $3,340,000 and accrued interest of approximately $103,533, a PPP advance with Streeterville\nCapital, LLC, with an original principal balance of $8,640,000, accrued interest of $92,160, and no stated maturity date, operating\nlease obligations totaling approximately $779,514, and outstanding gift card liabilities of approximately $446,000.\n\n \n\nWe anticipate incurring additional losses for the foreseeable future,\nand we may never become profitable. Furthermore, while we have decreased our operating expenses by reducing our personnel following the\nlaunch of Omni One, we nevertheless expect expenses to increase in connection with scaling sales, marketing, and production of Omni One,\nand in connection with being a public company. As of the date of this filing, following proceeds of $1,380,000 from Streeterville warrant\nexercises, we estimate we will have the resources to conduct our planned operations for at least 9 months. To continue as a going concern\nand execute our operating plan for the next 12 months, we estimate we will require additional funding of approximately $2,500,000.\n\n \n\nOur operating plan is predicated\non a variety of assumptions including, but not limited to, the level of product demand, cost estimates, our ability to continue to raise\nadditional financing and the state of the general economic environment in which we operate. There can be no assurance that these assumptions\nwill prove accurate in all material respects, or that we will be able to successfully execute our operating plan. In the absence of additional\nappropriate financing, we may have to modify our plan or slow down the pace of development and commercialization.\n\n \n\nThe following table summarizes our cash flows from operating, investing,\nand financing activities for the fiscal years ended March 31, 2026 and March 31, 2025:\n\n \n\n  \nYear Ended\n\nMarch 31,\n\n2026  \nYear Ended\n\nMarch 31,\n\n2025 \n\nNet cash used in operating activities \n$(9,504,380) \n$(7,890,252)\n\nNet cash used by investing activities \n$(97,045) \n$(467,189)\n\nNet cash provided by financing activities \n$18,594,805  \n$8,565,320 \n\n \n\n18\n\n \n\nTariffs\n\n \n\nOur products are currently\nmanufactured primarily in China and imported into the United States. U.S. import tariff rates, which under the two Trump administrations\nfluctuated widely, have potential to materially impact our financial results by reducing our profit margins or forcing us to raise selling\nprices to the consumer, which could in turn depress demand. We consider the materiality threshold to be any tariff level that exceeds\n30% and remains elevated for a sustained period. For additional information, see “*Risk Factors — Unfavorable global economic\nand political conditions, including tariffs and trade barriers, could adversely affect our business, financial condition or results of\noperations*” of our Prospectus dated January 26, 2026.\n\n \n\nOn February 20, 2026, the U.S. Supreme Court ruled against the tariffs\nthe Trump administration had imposed under the International Emergency Economic Powers Act (IEEPA). In response, the Trump administration\nsignaled its intention to seek alternative mechanisms for imposing tariffs. Although these developments may reduce the likelihood of tariffs\nbeing imposed under emergency authorities such as IEEPA, the Trump administration has signaled its intent to pursue alternative statutory\nmechanisms to impose or increase tariffs, and other tariffs (including those imposed under Sections 301 and 232) remain in effect. As\na result, while these developments may exert some downward pressure on certain tariff rates, tariffs remain elevated relative to historical\nlevels and continue to present material uncertainty and risk.\n\n \n\nAs we detailed in our Prospectus,\nwe have mitigated the potential impact of high tariffs on China-made goods by developing Taiwan as an alternative manufacturing location.\nWe expect Taiwan and the U.S. to maintain friendly trade relations. Taiwan has earned favorable tariff treatment by increasing purchases\nof U.S. commodities and scaling up investments in America’s manufacturing sector. On January 15, 2026, the U.S. and Taiwan signed\na new trade agreement lowering tariffs on Taiwan-made goods to 15%.\n\n \n\nIn January 2023, we opened\na wholly owned Taiwan subsidiary named Virtuix Manufacturing Taiwan Ltd. and began outsourcing some Omni One materials to Taiwanese factories.\nIf import tariffs on goods from China were to exceed the materiality threshold for a sustained period, we can expand our Taiwan manufacturing\nprogram by assembling the entire Omni One product in Taiwan.\n\n \n\nEmerging Growth Company\n\n \n\nWe are an “emerging\ngrowth company,” as defined in the Jump Start Our Business Startups Act of 2012 (“JOBS Act”). The status\nof “emerging growth company” enables us to invest more in research & development and customer acquisition rather than\ncompliance overhead. As an emerging growth company, we are eligible to take advantage of certain exemptions from various reporting and\ndisclosure requirements that are applicable to public companies that are not emerging growth companies, and we have elected to take advantage\nof those exemptions. For so long as we remain an emerging growth company, we will not be required to:\n\n \n\n●have an auditor attestation\nreport on our internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002\n(the “Sarbanes-Oxley Act”);\n\n \n\n●submit certain executive compensation\nmatters to shareholder advisory votes pursuant to the “say on frequency” and “say on pay” provisions (requiring\na non-binding shareholder vote to approve compensation of certain executive officers) and the “say on golden parachute” provisions\n(requiring a non-binding shareholder vote to approve golden parachute arrangements for certain executive officers in connection with\nmergers and certain other business combinations) of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010;\nor\n\n \n\n●disclose certain executive\ncompensation related items, such as the correlation between executive compensation and performance and comparisons of the chief executive\nofficer’s compensation to median employee compensation.\n\n \n\n19\n\n \n\nIn addition, the JOBS Act\nprovides that an emerging growth company may take advantage of an extended transition period for complying with new or revised accounting\nstandards that have different effective dates for public and private companies. This means that an emerging growth company can delay\nadopting certain accounting standards until such standards are otherwise applicable to private companies. We have elected to take advantage\nof the extended transition period. Since we will not be required to comply with new or revised accounting standards on the relevant dates\non which adoption of such standards is required for other public companies, our financial statements may not be comparable to the financial\nstatements of companies that comply with public company effective dates. If we were to subsequently elect to comply with these public\ncompany effective dates, such election would be irrevocable pursuant to Section 107 of the JOBS Act.\n\n \n\nWe will remain an emerging growth company for up to five years,\nor until the earliest of: (i) the last date of the fiscal year during which we had total annual gross revenues of $1.235 billion\nor more; (ii) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible\ndebt; or (iii) the date on which we are deemed to be a “large accelerated filer” as defined under Rule 12b-2 under\nthe Exchange Act.\n\n \n\nWe do not believe that being\nan emerging growth company will have a significant impact on our business. Also, even once we are no longer an emerging growth company,\nwe still may not be subject to auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act unless we meet\nthe definition of a large accelerated filer.\n\n \n\nCritical Accounting Policies and Estimates\n\n \n\nThe discussion and analysis\nof our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance\nwith accounting principles generally accepted in the United States. The preparation of these financial statements requires us to\nmake estimates and judgments that affect the amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent\nassets and liabilities. On an on-going basis, we evaluate our estimates based on historical experience and various other assumptions\nthat are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying\nvalues of assets and liabilities that are not readily available from other sources. Actual results may differ from these estimates under\ndifferent assumptions or conditions. While there are a number of significant accounting policies affecting our consolidated financial\nstatements, management believes the following critical accounting policies involve the most complex, difficult and subjective estimates\nand judgments.\n\n* *\n\n*Emerging Growth Company Status*\n\n \n\nWe are an “emerging\ngrowth company,” as defined in the Jump Start Our Business Startups Act of 2012 (“JOBS Act”). Under Section 107\nof the JOBS Act, emerging growth companies are permitted to use an extended transition period provided in Section 7(a)(2)(B) of\nthe Securities Act, for complying with new or revised accounting standards that have different effective dates for public and private\ncompanies. We have elected to use the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying\nwith new or revised accounting standards that have different effective dates for public and private companies until the earlier of the\ndate that we (i) are no longer an emerging growth company, or (ii) affirmatively and irrevocably opt out of the extended transition\nperiod provided in Section 7(a)(2)(B). By electing to extend the transition period for complying with new or revised accounting\nstandards, our financial statements may not be comparable to the financial statements of companies that comply with public company effective\ndates.\n\n* *\n\n*Principles of Consolidation*\n\n \n\nThe accompanying consolidated\nfinancial statements include the accounts of Virtuix Holdings Inc. as well as its subsidiaries required to be consolidated under accounting\nprinciples generally accepted in the United States of America (“GAAP”). Significant intercompany accounts and transactions\nhave been eliminated upon consolidation.\n\n \n\n20\n\n \n\n*Basis of Presentation*\n\n \n\nThe consolidated financial\nstatements are presented using the accrual basis of accounting, in U.S. dollars which is the Company’s functional currency.\nTherefore, revenues are recognized when earned and expenses are recognized when incurred.\n\n \n\nThe Company has adopted\na fiscal year ending March 31 of each year.\n\n* *\n\n*Management’s Estimates*\n\n \n\nPreparing the Company’s\nconsolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect reported\namounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements\nand the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.\n\n* *\n\n*Going Concern*\n\n \n\nThe accompanying consolidated\nfinancial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of\nliabilities in the normal course of business.\n\n \n\nThe Company has not generated profits since inception and has incurred\nnet losses of $16,799,253 and $14,648,792 for the years ended March 31, 2026 and 2025, respectively, and has accumulated deficits of $79,291,843\nand $62,492,590 as of March 31, 2026 and March 31, 2025, respectively. These factors, when considered in conjunction with the Company’s\nworking capital and liquid assets as of March 31, 2026, raise substantial doubt about the Company’s ability to continue as a going\nconcern within one year after the date these financial statements are issued. Subsequent to March 31, 2026, the Company raised additional\ncapital that has improved liquidity and is expected to mitigate the conditions that gave rise to this substantial doubt.\n\n \n\nManagement has taken several actions that it believes\nwill ensure that the Company will continue as a going concern for the next twelve months from the date the consolidated financial statements\nare available to be issued:\n\n \n\n1.Continuing to ramp up marketing\nand sales of Omni One; with anticipated significant revenues from this product line; and\n\n \n\n2.Raising capital from existing\nand new shareholders as necessary to fund operations.\n\n \n\nNo assurance can be given\nthat these efforts will be successful. The consolidated financial statements do not include any adjustments that might be necessary if\nthe Company is unable to continue as a going concern.\n\n* *\n\n*Revenue Recognition*\n\n \n\nThe Company recognizes revenue\nin accordance with Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers, which provides a\nfive-step model to determine when and how revenue is recognized. Under this model, revenue is recognized in an amount that reflects the\nconsideration the Company expects to be entitled to in exchange for transferring control of goods or services to a customer.\n\n \n\nThe Company applies the\nfollowing five steps to all revenue-generating arrangements:\n\n \n\n1.Identify the contract with\na customer;\n\n \n\n2.Identify the performance obligations\nin the contract;\n\n \n\n3.Determine the transaction price;\n\n \n\n4.Allocate the transaction price\nto the performance obligations; and\n\n \n\n5.Recognize revenue when or as\neach performance obligation is satisfied.\n\n \n\nThe Company’s contracts\ntypically consist of product sales, installation services, support programs, or the sale of digital playtime credits. Each of these is\nevaluated to determine whether it represents a separate performance obligation.\n\n \n\n21\n\n \n\nThe majority of revenue\narrangements involve a single performance obligation to transfer or install physical goods. Revenue is recognized when control is transferred\nto the customer, which occurs as follows:\n\n \n\n●Omni Pro units and related\naccessories — Revenue is recognized upon shipment to the customer, which is when control transfers and title passes.\n\n \n\n●Omni One units — Revenue\nis recognized upon shipment, consistent with the Company’s shipping terms.\n\n \n\n●Omni Arena systems — Revenue\nis recognized upon installation at the customer’s location, which is when control transfers.\n\n \n\n●Omni Care service program — treated\nas a separate performance obligation included with each Omni Arena contract. The transaction price is allocated to this performance obligation\non a relative standalone selling price basis, using observable standalone pricing of $2,000 per quarter. Accordingly, $8,000 associated\nwith Omni Care is included in the initial contract transaction price and is recognized ratably over the first 12 months of the contract\nterm, as the services are provided evenly over time. Following the initial 12-month period, customers are billed $2,000 per quarter for\ncontinued Omni Care services. Fees billed after the first year are recognized ratably over the applicable quarterly service period.\n\n \n\n●Omniverse Credits — These\ncredits grant access to virtual content or gameplay tied to Omni Pro and Omni Arena units. Revenue is recognized over the period during\nwhich access is expected to be consumed, typically two months from purchase based on usage patterns.\n\n \n\n●Omni Online — Revenue\nis recognized over time, ratably over the subscription period.\n\n \n\n●Omni One extended warranty\n— Sold separately from the Omni One unit and represents a service-type warranty. The transaction price is allocated to the extended\nwarranty on a relative standalone selling price basis, with an observable standalone selling price of $295. Revenue is recognized ratably\nover the 3-year warranty term.\n\n \n\nContracts may include multiple\nperformance obligations. In such cases, the Company allocates the transaction price to each obligation based on relative standalone selling\nprices. Payment terms are generally fixed and do not include significant financing components.\n\n \n\nAmounts received in advance\nof satisfying performance obligations are recorded as contract liabilities and recognized as revenue when the related obligation is fulfilled.\nThe Company’s contracts do not typically include variable consideration, material rights, or warranties that give rise to separate\nperformance obligations. Additionally, the Company has evaluated its role in the sale of digital content and has concluded that it acts\nas the principal, as it controls the content prior to transfer to the customer.\n\n* *\n\n*Cash and Cash Equivalents*\n\n \n\nThe Company considers deposits\nthat can be redeemed on demand and investments with original maturities of three months or less, when purchased, to be cash equivalents.\nAs of March 31, 2026 and March 31, 2025, the Company’s cash and cash equivalents were deposited primarily in five financial institutions.\nDeposits with these institutions may exceed federally insured limits. Management believes that the financial institutions holding the\nCompany’s cash are financially sound and, accordingly, the Company does not believe it is exposed to any significant credit risk\nrelated to its cash and cash equivalents.\n\n \n\nAll of a depositor’s\naccounts at an insured depository institution, including all non-interest bearing accounts, are insured by the Federal Deposit Insurance\nCorporation (“FDIC”) up to $250,000 in total. Balances in excess of this coverage are uninsured and subject to loss should\nthe institution fail, with a possible offset against outstanding loans. The Company has not experienced any losses in such accounts and\nmanagement believes the Company is not exposed to any significant credit risk related to cash. Cash and cash equivalents in the amount\nof $226,309 and $196,962, representing foreign deposits at financial institutions, are not insured by the FDIC at March 31, 2026 and\nMarch 31, 2025, respectively.\n\n* *\n\n*Accounts Receivable*\n\n \n\nTerms of payment are generally\nthirty days from the invoice date. Receivables are recorded net of an allowance for credit losses, which is established based on\nmanagement’s best estimate of probable credit losses after considering factors such as previous loss history, customers’\nability to pay their obligations, and the condition of the general economy and industry as a whole.\n\n* *\n\n*Inventory Valuation*\n\n \n\nInventory is stated at the\nlower of cost (first-in, first-out) or net realizable value in accordance with Topic 330, *Inventory*. Cost is computed using\nweighted average cost at one subsidiary and specific identification cost at the remaining subsidiaries. There is no material impact on\nthe comparability of the financial results as a result of these differing methods. The Company applies net realizable value and obsolescence\nto the gross value of the inventory.\n\n \n\nThe Company estimates net\nrealizable value based on estimated selling price less further costs to completion and disposal. The Company impairs slow-moving products\nby comparing inventories on hand to projected demand. When impairments are established, a new cost basis of the inventory is created.\n\n \n\n22\n\n \n\n*Property and Equipment*\n\n \n\nProperty and equipment are\nrecorded at cost, less accumulated depreciation. Expenditures for major additions and improvements are capitalized and minor replacements,\nmaintenance, and repairs are charged to expense as incurred. Leasehold improvements are amortized over the shorter of the term of the\nrespective operating lease or the estimated economic life of the asset. When property and equipment are retired or otherwise disposed\nof, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the results of\noperations for the respective period. Depreciation is provided over the estimated useful lives of the related assets using the straight-line\nmethod for financial statement purposes. The Company uses other depreciation methods (generally accelerated) for tax purposes where appropriate.\n\n \n\nThe estimated useful lives for significant\nproperty and equipment categories are as follows:\n\n \n\nComputer Equipment \n5 years\n\nFurniture and Fixtures \n7 years\n\nMachinery and Equipment \n3 – 7 years\n\nOffice Equipment \n5 – 7 years\n\nLeasehold Improvements \n3 – 5 years\n\n* *\n\n*Fair Value Measurements*\n\n \n\nThe Company’s financial\ninstruments consist primarily of cash, accounts receivable, accounts payable, accrued expenses, notes payable, and lease liability. The\ncarrying amounts of such financial instruments approximate their respective estimated fair value due to the short-term maturities and\napproximate market interest rates of these instruments.\n\n \n\nFinancial Accounting Standards\nBoard (“FASB”) guidance specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques\nare observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect\nmarket assumptions. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities\n(Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The three levels of the fair value hierarchy\nare as follows:\n\n \n\n●Level 1 — Unadjusted\nquoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement\ndate. Level 1 primarily consists of financial instruments whose value is based on quoted market prices such as exchange-traded instruments\nand listed equities.\n\n \n\n●Level 2 — Inputs other\nthan quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly (e.g., quoted\nprices of similar assets or liabilities in active markets, or quoted prices for identical or similar assets or liabilities in markets\nthat are not active).\n\n \n\n●Level 3 — Unobservable\ninputs for the asset or liability. Financial instruments are considered Level 3 when their fair values are determined using pricing models,\ndiscounted cash flows or similar techniques and at least one significant model assumption or input is unobservable.\n\n \n\nThe carrying amounts reported in the\nconsolidated balance sheets approximate their fair value.\n\n* *\n\n*Intangibles*\n\n \n\nThe Company’s intangible\nassets include software, trademarks, customer lists, and a website, which are amortized on a straight-line basis over their estimated\nuseful lives. The costs of developing intangible assets for internal use are expensed as incurred.\n\n \n\nThe estimated useful lives\nfor significant intangible asset categories are as follows:\n\n \n\nSoftware \n3 – 5 years\n\nTrademarks \nIndefinite\n\nCustomer Lists \n3 years\n\nWebsite \n3 years\n\n \n\n23\n\n \n\n*Software and Website Development Costs*\n\n \n\nThe Company accounts for\nsoftware development costs in accordance with several accounting pronouncements, including Topic 730, Research and Development, Topic\n985-20, Costs of Computer Software to be Sold, Leased, or Marketed and Topic 330-10, Inventory.\n\n \n\nCosts incurred during the\nperiod of planning and design, prior to the period determining technological feasibility, for all software developed for internal and\nexternal use, has been charged to operations in the period incurred as research and development costs. Additionally, costs incurred after\ndetermination of readiness for market have been expensed as research and development. The Company capitalizes certain costs in the development\nof its proprietary software (computer software to be sold, leased or licensed) for the period after technological feasibility was determined\nand prior to marketing and initial sales. Once technological feasibility is reached, and the software has been released for sale, such\ncosts are capitalized and amortized to cost of revenue over the estimated lives of the products. These capitalized costs are amortized\nover their estimated useful lives and reviewed for impairment in accordance with Topic 330 when indicators of impairment exist.\n\n \n\nWebsite development costs\nare accounted for separately under Topic 350-50, Website Development Costs.\n\n* *\n\n*Deferred Revenue*\n\n \n\nDeferred revenue represents\ncash received from customers for which the related revenue has not yet been earned. This primarily includes unfilled orders of Omni One\nunits and Omni Pro units that have not yet been delivered or refunded by the end of the reporting period. Deferred revenue also includes\namounts billed but not yet recognized for Omni Arenas installations and parts, as well as deferred revenue related to Omniverse Credits\nand Omni Care subscriptions associated with installed Omni Arena units for which revenue recognition criteria have not been met.\n\n \n\nDeferred revenue as of March\n31, 2026 and March 31, 2025 consists of the following:\n\n \n\n  \nMarch 31,\n2026  \nMarch 31,\n2025 \n\nOmni One \n$24,121  \n$936,821 \n\nOmni One Extended Warranty \n 21,855  \n - \n\nOmni Pro \n 450,732  \n 451,545 \n\nOmni Arena \n 94,744  \n 290,169 \n\nOmni Online \n 29,874  \n 44,104 \n\nOmniverse Credits \n 27,001  \n 37,584 \n\nOmni Care subscriptions \n 18,000  \n 9,333 \n\nTotal \n$666,327  \n$1,769,556 \n\n \n\nRevenue recognized during\nthe year ended March 31, 2026 and 2025 that was included in deferred revenue at the beginning of the respective periods was $3,571,140\nand $3,100,627, respectively.\n\n \n\nPayments received from customers\nduring the year ended March 31, 2026 and 2025 that increased deferred revenue were $2,703,064 and $3,109,944, respectively.\n\n \n\nDeferred revenue includes\nlegacy preorders for Omni Pro units that we have not been able to refund to customers due to an inability to get in touch with these\ncustomers. We no longer produce or sell Omni Pro. As of March 31, 2026, the value of unrefunded Omni Pro preorders totaled $449,635.\nWe plan to report these preorders as unclaimed (escheated) property to the State of Texas and submit these funds to the Texas Comptroller\nof Public Accounts. The related balance will be reclassified from deferred revenue to an escheatment liability account, both of which\nare presented within current liabilities. The liability will be relieved when the funds are remitted to the State. There will be no impact\nto the Company’s Consolidated Statement of Operations because we will not recognize revenues or expenses on these preorders. Upon\nremittance, both cash and current liabilities will be decreased on the Consolidated Balance Sheet, and the remittance will be reflected\nas a cash outflow within cash used in operating activities in our Consolidated Statement of Cash Flows.\n\n \n\n24\n\n \n\nDeferred revenue previously\nincluded outstanding Omni One preorder deposits of $200 each from customers who placed a preorder for Omni One but have not yet completed\ntheir purchase. However, during the year ended March 31, 2026, the Company issued customers gift cards as a replacement for their preorder\ndeposit, and thus, reclassified preorder purchases totaling $226,445 from Deferred Revenue to a separate liability account. We expect\nmost of these gift cards to be applied by the customers to a future purchase of Omni One, or otherwise to expire unclaimed.\n\n* *\n\n*Advertising Costs*\n\n \n\nAdvertising costs are expensed\nas incurred, and are included in selling expenses in the accompanying consolidated statements of operations. Total advertising expense\nfor the year ended March 31, 2026 and 2025, was $1,317,794 and $347,429, respectively.\n\n* *\n\n*Federal Income Taxes*\n\n \n\nTopic 740, *Income\nTaxes,*clarifies the accounting for income taxes by prescribing the minimum recognition threshold a tax position is required to meet\nbefore being recognized in the financial statements. Topic 740 also provides guidance on derecognition, measurement, classification,\ninterest and penalties, accounting in interim periods, disclosure, and transition. No uncertain tax positions were identified. The Company\nrecognizes tax related interest and penalties, if any, as a component of income tax expense. The Company has never incurred any federal\nincome tax liability and has not paid any federal income taxes since its inception.\n\n \n\nThe U.S. federal tax\nreturns are subject to examination by the Internal Revenue Service, generally for three years after they are filed. State tax returns\nare subject to examination generally for five years after they are filed.\n\n* *\n\n*Net Loss Per Share*\n\n \n\nBasic and diluted net loss\nper share is calculated by dividing net loss by the weighted-average number of shares of common stock outstanding during the period.\nThe Company presents both basic and diluted net loss per share. Basic net loss per share includes only the weighted-average common shares\noutstanding during the period.\n\n \n\nPotentially dilutive securities\nthat were excluded from the computation of diluted net loss per share because their effect would have been anti-dilutive, include stock\noptions, RSUs, warrants, and convertible preferred stock. The total number of potentially dilutive shares excluded from the computation\nwas 5,790,884 and 24,336,200 at March 31, 2026 and 2025, respectively.\n\n* *\n\n*Foreign Currency Remeasurements*\n\n \n\nThe Company’s non-U.S.\nsubsidiaries, VML and its wholly-owned subsidiary VML_ZH, along with VMT, operate using the U.S. dollar as the functional currency. The\neffect of foreign currency exchange rate fluctuations on consolidated balance sheet accounts were not material for the year ended March\n31, 2026 and 2025."}