AMC Robotics Corp 10-K

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations Forward-Looking Statements References to the “Company,” “our,” “us” or “we” refer to AMC Robotics Corporation. The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the audited financial statements and the related notes included in “Item 8. Financial Statements and Supplementary Data” of this Annual Report on Form 10-K. Certain information contained in the discussion and analysis set forth below includes forward-looking statements. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those set forth under “Cautionary Note Regarding Forward-Looking Statements and Risk Factor Summary,” “Item 1A. Risk Factors,” and elsewhere in this Annual Report on Form 10-K. Overview Our Company and our Business Overview AMC Robotics Corporation became publicly listed through the Business Combination with AlphaVest Acquisition Corp. in December 2025. Prior to the Business Combination, AMC Corporation, which was incorporated in the State of Washington on October 21, 2021, was the predecessor operating entity and conducted substantially all of the Company’s business activities. As the Business Combination was accounted for as a reverse recapitalization, AMC Corporation is considered the accounting acquirer, and its historical financial statements form the basis of the Company’s consolidated financial statements. The Company distributes security cameras through e-commerce platforms across the United States, Canada, and Europe. Its product portfolio includes cameras designed for residential homes and small businesses, such as the YI dome guard, home camera, and outdoor camera. The online stores on these e-commerce platforms in the aforementioned regions were owned by Ants, Xiaoyun, and Yishijue. Pursuant to the Authorization Agreements, these entities have authorized the Company to utilize their e-commerce platform accounts free of charge until October 20, 2026. The Authorization Agreements with Xiaoyun and Yishijue will continue until the existing inventory of the Company’s products has been sold, at which time the agreements will be terminated. Xiaoyun and Yishijue are variable interest entities (VIEs), through contractual arrangements, holds effective control over their primary economic activities, assumes the associated risks and benefits from the economic rewards, making AMC Corporation the primary beneficiary. On December 1, 2025, AMAC Corporation terminated its contractual arrangements with Xiaoyun and Yishijue, which resulted in the loss of control over the VIE and, accordingly, the deconsolidation of the VIEs. Recent Development and Future Objectives Business Combination AMC Corporation entered into the Business Combination Agreement with SPAC on August 16, 2024. In December 2025, the Company completed a business combination with AlphaVest Acquisition Corp. (the “Business Combination”), as a result of which AMC Corporation became a wholly owned subsidiary of AMC Robotics Corporation. The transaction was accounted for as a reverse recapitalization, with AMC Corporation deemed the accounting acquirer for financial reporting purposes. 27 Table of Contents Private Investment in Public Equity (“PIPE”) Financing In connection with the Business Combination, the Company consummated a PIPE financing that generated gross proceeds of $8,000,000, which closed concurrently with the Business Combination. As part of the PIPE financing, the Company issued 2,240,000 PIPE warrants to investors. Update of Revenue Stream In 2025, the Company’s revenue composition changed, with a decrease in product sales and the introduction of a new revenue stream derived from a revenue-sharing arrangement with its related party, Kami Vision. Under this arrangement, the Company is entitled to 30% of the revenue generated from intelligent information services provided by Kami Vision. Outlook of the business models The Company intends to maintain its recurring revenue streams from existing product sales while gradually transitioning its business focus toward the development and deployment of autonomous robotic systems and intelligent security solutions. Management expects that this shift in business model will result in improved revenue margins and support the long-term growth and success of the Company’s operations. Executive Summary of Financial Performance (in USD) 2025 2024 $ change % Change Total Revenue 5,980,847 10,200,957 (4,220,110 ) (41 )% Cost of Revenue (3,127,699 ) (9,544,977 ) 6,417,278 (67 )% Gross Profit 2,853,148 655,980 2,197,168 335 % Operating Loss (505,166 ) (2,553,974 ) 2,048,808 80 % Net Income (Loss) (24,817,342 ) (776,960 ) (24,040,382) (3,094 )% Cash and Cash Equivalents 7,004,601 358,887 6,645,714 1,852 % The Company’s financial performance for the year ended December 31, 2025 reflects a fundamental shift in operating strategy and financial profile, transitioning from a revenue-driven model to a margin and efficiency driven model. The 41% decline in revenue was primarily attributable to a deliberate reduction in lower-margin product sales and a contraction in e-commerce volume. While this decline reduced top-line growth, it was accompanied by a disproportionately larger reduction in cost of revenue (67%), indicating improved cost discipline and reduced exposure to inventory-related inefficiencies. As a result, gross profit increased by approximately $2.2 million, and gross margin expanded significantly from 6% in 2024 to 48% in 2025. This margin expansion reflects a combination of (i) reduced inventory impairment, (ii) improved procurement and cost controls, and (iii) a higher contribution from revenue-sharing and service-based revenue streams. Operating losses decreased by approximately $2.0 million, driven primarily by improved gross profitability and reduced discretionary spending, particularly in sales and marketing. Despite modest increases in general and administrative expenses associated with public company readiness, overall cost structure improved. For the year ended December 31, 2025, the Company reported a net loss of $24,817,342, compared to a net loss of $776,960 for the year ended December 31, 2024. The increase in net loss was primarily attributable to a non-cash loss of $25,549,272 recognized from the change in fair value of the PIPE warrant liability. This loss resulted from the remeasurement of the warrant liability at fair value in accordance with ASC 815 and was significantly impacted by changes in the Company’s stock price and the contractual terms of the warrants, including reset and anti-dilution features that increased the number of underlying shares. Excluding the impact of this non-cash fair value adjustment, the Company’s operating results improved compared to the prior year, driven by higher gross margins and reduced operating losses. 28 Table of Contents Liquidity improved significantly, with cash increasing by approximately $6.6 million, primarily due to proceeds from the SPAC transaction and related financing activities. This enhanced liquidity enabled the Company to reduce outstanding obligations and improve its working capital position. Overall, 2025 represents a transition year in which the Company prioritized profitability, cost efficiency, and balance sheet strength over revenue growth. Results of Operations The Company’s results of operations for 2025 were characterized by declining revenue but significantly improved profitability, driven by changes in revenue composition, cost structure, and operational discipline. The most significant drivers of the year-over-year changes include: ● A shift away from inventory-intensive product sales toward higher-margin revenue-sharing arrangements ● A substantial reduction in inventory impairment and excess stock ● Improved cost alignment with revenue levels, particularly in logistics and marketing ● Continued reliance on related-party transactions as a key component of both revenue and profitability These changes reflect a broader strategic repositioning of the Company toward a more sustainable and capital-efficient operating model. Revenue Revenue Component 2025 2024 $ Change % Change Product revenue 2,346,474 7,439,899 (5,093,425 ) (68 )% Product revenue – related party 515,756 6,270 509,486 8,126 % Revenue share – related party 3,118,617 2,754,788 363,829 13 % Total Revenue 5,980,847 10,200,957 (4,220,110 ) (41 )% The decline in total revenue was primarily driven by a $5.1 million decrease in product revenue, reflecting reduced sales volume and a strategic decision to scale back lower-margin product lines. This reduction indicates a shift away from revenue generated through high inventory turnover toward a more selective and margin-focused sales approach. Product revenue from related parties increased significantly, although it remains a relatively small component of total revenue. This increase reflects expanded transactions within affiliated entities and may indicate evolving commercial arrangements. Revenue from related parties includes amounts derived from revenue-sharing arrangements associated with cloud services and intelligent information services, which were introduced in 2025. Revenue from these arrangements increased significantly during the period and became the largest contributor to total revenue. This shift reflects the Company’s increasing reliance on collaborative revenue models, which generally involve lower cost structures and reduced working capital requirements. The introduction of intelligent information services in 2025 represents a strategic diversification into service-based revenue streams. Although this revenue stream is currently not material relative to total revenue, management expects it to provide higher margins and recurring revenue potential over the long term. Overall, the change in revenue composition reflects a transition toward lower-volume but higher-quality revenue streams, which is consistent with the Company’s focus on improving profitability. 29 Table of Contents Cost of Revenue and Gross Profit 2025 2024 $ Change Cost of Revenue (3,127,699 ) (9,544,977 ) 6,417,278 Gross Profit 2,853,148 655,980 2,197,168 Gross Margin 48 % 6 % 42 pts The $6.4 million reduction in cost of revenue significantly exceeded the decline in revenue, resulting in a substantial increase in gross profit and margin. A key driver of this improvement was the reduction in inventory impairment losses, which declined from approximately $1.3 million in 2024 to approximately $0.16 million in 2025. This change reflects improved inventory management practices, including better alignment of procurement with demand and reduced exposure to obsolete inventory. In addition, lower product sales volume resulted in reduced product cost, E-commerce platform expenses, and logistics and fulfillment costs were more effectively aligned with sales activity. The resulting increase in gross margin from 6% to 48% reflects a structural improvement in the Company’s cost profile, driven by both operational efficiencies and a higher proportion of revenue from higher-margin activities. This margin expansion is a critical indicator of improved business sustainability and profitability. Operating Expenses Expense Category 2025 2024 $ Change % Change General & Administrative 2,687,250 2,190,635 496,615 23 % Sales & Marketing 612,992 2,026,051 (1,413,059 ) (70 )% Research & Development 58,072 255,414 (197,342 ) (77 )% Credit Loss (Reversal) - (1,262,146 ) 1,262,146 (100 )% Total Operating Expenses 3,358,314 3,209,954 148,360 5 % General and administrative expenses increased by approximately $0.5 million, primarily due to incremental costs associated with becoming a public company. These include audit fees, legal expenses, compliance costs, and corporate governance infrastructure. These costs are expected to remain elevated as the Company continues to operate as a public entity. Sales and marketing expenses decreased significantly by approximately $1.4 million, reflecting a reduction in promotional activities and a more disciplined approach to customer acquisition. This decrease suggests improved efficiency in marketing spend and a strategic shift toward profitability rather than growth. Research and development expenses declined as the Company reduced investment in new product development and focused on optimizing existing offerings. While this supports short-term cost control, it may impact long-term innovation. The absence of the prior-year credit loss reversal of $1.3 million contributed to the increase in operating expenses on a comparative basis. Excluding this non-recurring item, operating expenses would have decreased year over year. Overall, the Company demonstrated improved cost discipline, with operating expenses more closely aligned with revenue levels, contributing to a significant reduction in operating losses. 30 Table of Contents Other Income (Expense) 2025 2024 $ Change Other income – related party 1,217,586 1,779,528 (561,942 ) Other income (expense), net 39,675 31,577 8,098 Interest income 14,413 675 13,738 Interest expense – related party - (18,999 ) 18,999 Loss from the change of the FV of Warrant Liability (25,549,272 ) - (25,549,272 ) Interest expense (24,616 ) (7,943 ) (16,673 ) Loss on deconsolidation (5,310 ) - (5,310 ) Total Other Income (loss), Net (24,307,524 ) 1,784,838 (26,092,362 ) For the year ended December 31, 2025, total other income (loss) was a loss of $24,307,524, compared to total other income of $1,784,838 for the year ended December 31, 2024. The change was primarily attributable to the recognition of a non-cash loss of $25,549,272 from the change in fair value of the PIPE warrant liability, which is presented as a separate line item in other income (loss) in the current year. This loss arose from the remeasurement of the warrant liability at fair value in accordance with ASC 815 and was significantly impacted by changes in the Company’s stock price and the contractual terms of the warrants, including reset and anti-dilution features that increased the number of underlying shares. Excluding the impact of the fair value adjustment on the warrant liability, other income remained relatively consistent period over period, primarily consisting of other income from related parties of $1,217,586 in 2025 compared to $1,779,528 in 2024, as well as other miscellaneous income and interest income. Interest expense was $24,616 for the year ended December 31, 2025, compared to $26,942 (including related party interest) for the prior year. The Company also recognized a nominal loss on deconsolidation of $5,310 in 2025. Liquidity and Capital Resources Liquidity Overview As of December 31, 2025, the Company had cash and cash equivalents of approximately $7.0 million, compared to approximately $0.4 million as of December 31, 2024, representing an increase of approximately $6.6 million. This significant improvement in liquidity was primarily attributable to proceeds received from the Business Combination with AlphaVest Acquisition Corp. and related PIPE financing, as discussed in Note 1 – Organization and Nature of Business. Working capital improved materially during 2025, driven by both increased cash balances and a reduction in outstanding liabilities, particularly related-party obligations (see Note 8 – Related Party Transactions). The Company used a portion of financing proceeds to settle historical payables and strengthen its balance sheet. The Company’s liquidity position is influenced by several key factors: ● Operating performance, including gross margin and expense management ● Working capital dynamics, particularly receivables and payables involving related parties ● Access to external financing, including equity financing and capital markets transactions ● Inventory management, which affects cash tied up in operations Despite achieving net income in 2025, the Company generated negative operating cash flows due to significant working capital outflows, primarily related to settlement of prior obligations and timing of related-party transactions. Management believes that the Company’s current cash position, together with expected operating cash flows, will be sufficient to meet its working capital requirements and capital expenditure needs for at least the next twelve months. However, the Company’s future liquidity will depend on its ability to sustain profitability, manage working capital efficiently, and maintain access to capital markets if needed. 31 Table of Contents Cash Flow Analysis 2025 2024 $ Change Net cash (used in)/provided by operating activities (5,555,840 ) 568,455 (6,124,295 ) Net cash provided by (used in) investing activities 15,862 (188,822 ) 204,684 Net cash provided by (used in) financing activities 12,179,965 (148,819 ) 12,328,784 Operating Activities Net cash used in operating activities was approximately $5.5 million for the year ended December 31, 2025, compared to net cash provided by operating activities of approximately $0.6 million for the year ended December 31, 2024. The Company reported a net loss of $24,817,342 for the year ended December 31, 2025, which was primarily attributable to a non-cash loss of $25,549,272 from the change in fair value of the PIPE warrant liability. This non-cash charge, recorded in accordance with ASC 815, did not impact operating cash flows and therefore is added back in the reconciliation from net loss to net cash used in operating activities. Excluding the impact of this non-cash fair value adjustment, operating cash flows were primarily affected by changes in working capital, including the following: ● Reduction in accounts payable to related parties (~$8.5 million) This represents a significant use of cash and reflects the settlement of historical obligations. While this reduced liquidity in the current period, it strengthened the Company’s balance sheet and reduced future obligations. ● Increase in accounts receivable from related parties (~$1.9 million) This increase reflects timing differences between revenue recognition and cash collection, particularly for revenue-sharing arrangements. This represents a temporary use of cash and introduces credit and concentration risk. ● Decrease in inventory (~$2.5 million) This reduction provided a source of cash and reflects improved inventory management, reduced procurement, and lower exposure to excess stock. ● Changes in other working capital accounts, including prepaid expenses and accrued liabilities, which partially offset the above impacts. Overall, the negative operating cash flow in 2025 should be viewed in the context of balance sheet restructuring and normalization of working capital, rather than deterioration in underlying operating performance. Investing Activities Net cash provided by investing activities was approximately $16,000 in 2025, compared to net cash used of approximately $0.2 million in 2024. Investing activities primarily consisted of transactions related to promissory notes and other financial assets, including issuance, repayment, or collection of notes receivable. These transactions are not indicative of the Company’s core operating activities but reflect capital allocation decisions and financing arrangements. The increase in cash provided by investing activities in 2025 suggests a net recovery or liquidation of financial assets, which contributed positively to liquidity. The Company did not incur significant capital expenditures during the period, reflecting its asset-light business model. Financing Activities Net cash provided by financing activities was approximately $12.2 million in 2025, compared to net cash used of approximately $0.1 million in 2024. 32 Table of Contents The primary drivers of financing cash inflows in 2025 include: ● Proceeds from the SPAC trust account ● PIPE financing and equity issuances ● Capital contributions and recapitalization adjustments These inflows significantly enhanced the Company’s liquidity and enabled: ● Repayment of related-party liabilities ● Strengthening of working capital ● Reduction of financial risk associated with prior obligations In contrast, financing activities in 2024 were minimal and primarily consisted of small-scale debt repayments or related-party financing. The Company’s reliance on equity financing in 2025 reflects its transition to a public company and reduced dependence on related-party funding. Capital Resources The Company’s capital resources consist primarily of cash generated from financing activities and, to a lesser extent, operating cash flows. As of December 31, 2025, the Company had limited third-party debt obligations, resulting in minimal exposure to interest rate risk and no significant near-term debt maturities. Historically, the Company relied on related-party financing to support operations; however, this reliance has decreased significantly following the Business Combination. The Company’s capital structure improved materially during 2025 as a result of: ● Increased equity capitalization ● Reduction of related-party liabilities ● Improved liquidity and working capital The Company’s capital requirements are driven primarily by: ● Working capital needs (inventory, receivables, payables) ● Operating expenses, including public company costs ● Potential investments in product development and service expansion Management expects that future capital requirements will be met through a combination of existing cash, operating cash flows, and, if necessary, additional financing. The Company currently does not maintain a revolving credit facility or other committed borrowing arrangements. While this reduces financial leverage, it may limit flexibility in managing short-term liquidity needs. Contractual Obligations and Commitments The Company’s contractual obligations consist primarily of lease obligations, and other operating liabilities, as disclosed in Note 12 - Lease and Note 17 – Commitments and Contingencies. 33 Table of Contents Lease Obligations (ASC 842) The Company has operating lease arrangements for office space and facilities. As of December 31, 2025, lease liabilities totaled approximately $110,000, representing future minimum lease payments. These obligations are relatively modest and do not represent a significant liquidity burden. Purchase Commitments The Company may enter into purchase commitments with suppliers in the normal course of business. These commitments are generally short-term in nature and are aligned with expected sales demand. The Company has reduced its reliance on large inventory purchases, thereby limiting exposure to long-term procurement commitments. Related Party Obligations Historically, the Company had significant obligations to related parties; however, during 2025, these obligations were substantially reduced through settlement using proceeds from financing activities (see Note 8). As a result, outstanding related-party obligations are no longer a significant component of contractual commitments. Other Commitments and Contingencies The Company may be subject to contingencies, including legal or contractual matters, in the ordinary course of business. Management does not believe that any such matters will have a material adverse effect on the Company’s financial position. Overall Liquidity Assessment The Company’s liquidity position improved significantly in 2025 as a result of financing activities and balance sheet restructuring. While operating cash flows were negative due to working capital adjustments, these outflows were largely non-recurring and associated with the settlement of prior obligations. The Company’s current liquidity, combined with improved profitability and reduced leverage, provides a stronger financial foundation. However, future liquidity will depend on the Company’s ability to: ● Sustain positive operating performance ● Effectively manage working capital ● Maintain access to external financing, if needed Management believes the Company is well-positioned to meet its near-term obligations and support its ongoing operations and strategic initiatives. Critical Accounting Policies and Estimates The preparation of the Company’s consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses, as well as related disclosures. These estimates are based on historical experience, current conditions, and various other assumptions that management believes are reasonable under the circumstances. Because of the inherent uncertainty involved in making these estimates, actual results could differ materially from those estimates. The Company’s most critical accounting policies are those that involve significant judgment and have a material impact on the financial statements. 34 Table of Contents Revenue Recognition (ASC 606) The Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers , when control of goods or services is transferred to customers in an amount that reflects the consideration to which the Company expects to be entitled. A significant area of judgment involves determining whether the Company acts as a principal or an agent in its revenue arrangements, particularly in transactions involving: ● E-commerce platform sales ● Related-party revenue-sharing arrangements (see Note 8 – Related Party Transactions) This assessment requires evaluation of factors such as control over goods or services, inventory risk, pricing discretion, and responsibility for fulfillment. If the Company is determined to be the principal, revenue is recognized on a gross basis; if the Company is an agent, revenue is recognized on a net basis. Changes in this assessment could materially affect reported revenue and cost of revenue. In addition, revenue-sharing arrangements require judgment in identifying performance obligations and determining the appropriate allocation of transaction price. Variability in contract terms or interpretation could impact the timing and amount of revenue recognized. Inventory Valuation (ASC 330) Inventory is stated at the lower of cost or net realizable value. Cost is determined using standard costing methods, which approximate actual costs. The Company evaluates inventory for excess quantities, obsolescence, and slow-moving items. This evaluation requires significant judgment regarding: ● Forecasted demand ● Product lifecycle and technological obsolescence ● Pricing trends and competitive conditions In 2024, the Company recorded significant inventory impairment charges due to excess and slow-moving inventory. In 2025, improved inventory management practices resulted in substantially lower impairment. However, future changes in demand patterns, product innovation cycles, or market conditions could result in additional write-downs. Inventory valuation remains a highly sensitive estimate that directly impacts gross margin. Allowance for Expected Credit Losses (ASC 326) The Company accounts for expected credit losses under ASC 326, Current Expected Credit Losses (CECL) . The allowance is estimated using a loss-rate methodology based on: ● Historical credit loss experience ● Current economic conditions ● Forward-looking information 35 Table of Contents A significant portion of the Company’s accounts receivable is due from related parties (see Note 8 ), which introduces concentration risk. Management evaluates collectability on an ongoing basis and considers factors such as: ● Financial condition of counterparties ● Payment history ● Contractual terms Although historical losses have been limited, any deterioration in the financial condition of related parties or changes in business relationships could result in increased credit loss provisions. Warranty Liabilities The Company provides warranties on certain products and recognizes a liability for estimated warranty costs at the time of sale. Warranty liabilities are estimated based on: ● Historical claim rates ● Product failure trends ● Estimated repair or replacement costs These estimates require judgment and may be affected by changes in product design, manufacturing quality, or customer usage patterns. Actual warranty costs may differ from estimates, resulting in adjustments to warranty expense in future periods. Variable Interest Entity (VIE) Consolidation (ASC 810) The Company evaluates its involvement with variable interest entities in accordance with ASC 810, Consolidation . A VIE is consolidated if the Company is determined to be the primary beneficiary, which requires: 1. Power to direct the activities that most significantly impact the VIE’s economic performance, and 2. Exposure to potentially significant economic benefits or losses This evaluation requires significant judgment, particularly in assessing contractual arrangements and decision-making authority. Historically, the Company consolidated certain VIEs that held e-commerce platform accounts. In December 2025, the Company terminated the underlying contractual arrangements and deconsolidated these entities (see Note 1). Changes in contractual arrangements, ownership structure, or operational control could result in future consolidation or deconsolidation events, which may materially impact the Company’s financial statements. Related Party Transactions (ASC 850) The Company engages in significant transactions with related parties, including revenue-sharing arrangements, product sourcing, and financing activities (see Note 8 – Related Party Transactions). Accounting for related-party transactions requires judgment in determining: ● Appropriate revenue recognition treatment 36 Table of Contents ● Classification of transactions ● Measurement and presentation Because these transactions may not be conducted on an arm’s-length basis, there is an increased risk of misstatement if terms are not properly evaluated. The Company monitors related-party balances and transactions to ensure proper recognition and disclosure. Forward Purchase Agreement Prior to the Business Combination, AlphaVest entered into a Forward Purchase Agreement (“FPA”) with Harraden Circle Investments and its affiliated entities (“Harraden”) to support post-closing liquidity and capital structure stability. Under this arrangement, Harraden agreed to acquire shares from existing shareholders at the redemption price and may subsequently sell such shares in the open market over a defined period. At closing, the Company funded an aggregate prepayment of approximately $6.68 million to facilitate Harraden’s participation in the arrangement. The structure of the FPA allows Harraden to retain certain economic benefits from the resale of shares, subject to contractual pricing mechanisms, including volume-weighted average price and reset provisions. Importantly, Harraden is not required to return the full proceeds from share sales, and any unsold shares are expected to be returned to the Company at maturity. During 2025, Harraden completed partial settlements and early terminations under the FPA, resulting in cash proceeds to the Company of approximately $4.3 million. As of December 31, 2025, a portion of the arrangement remains outstanding, with Harraden continuing to hold shares associated with the FPA. From a liquidity perspective, the FPA provided near-term funding at the time of the Business Combination but also introduced variability in future cash flows due to its settlement mechanics and linkage to market prices. The remaining balance associated with the FPA is reflected as a reduction of stockholders’ equity, consistent with its financing nature and the Company’s assessment of the arrangement. Management continues to monitor the impact of the FPA on the Company’s capital structure and liquidity, including potential future settlements, share returns, and market-related adjustments. While the arrangement supported the completion of the Business Combination, its complex terms and market-dependent outcomes may affect period-to-period comparability of equity and cash flows. Income Taxes (ASC 740) The Company accounts for income taxes under ASC 740, Income Taxes , which requires recognition of deferred tax assets and liabilities for temporary differences between financial reporting and tax bases. Management evaluates the realizability of deferred tax assets, including net operating loss carryforwards, and establishes a valuation allowance when it is more likely than not that such assets will not be realized. This assessment requires judgment regarding: ● Future taxable income ● Timing of reversals of temporary differences ● Tax planning strategies Changes in these assumptions could result in adjustments to valuation allowances and income tax expense. Sensitivity of Estimates and Judgments The Company’s financial results are particularly sensitive to changes in estimates related to: ● Revenue recognition (principal vs. agent) ● Inventory valuation and impairment ● Collectability of related-party receivables ● VIE consolidation conclusions A change in any of these assumptions could materially affect reported revenue, gross profit, net income, and financial position. For example: ● A change in principal vs. agent conclusion could significantly alter reported revenue and cost of revenue ● A modest increase in inventory obsolescence assumptions could materially reduce gross margin ● Delays in collection of related-party receivables could increase credit loss provisions Management continuously reviews these estimates and assumptions and adjusts them as necessary based on evolving business conditions. Recently Issued Accounting Pronouncements For a discussion of our new or recently adopted accounting pronouncements, see Note 2, Recent issued accounting pronouncements, to our consolidated financial statements included elsewhere in this annual report. 37 Table of Contents Management does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the consolidated financial statements and notes thereto included elsewhere in this annual report. Non-GAAP Financial Measures EBITDA is a non-GAAP financial measure defined as net income (loss) before interest expense, income taxes, depreciation, and amortization. The Company uses EBITDA as a supplemental measure to evaluate its operating performance and to facilitate period-to-period comparisons by excluding items that are not directly related to core operations. Adjusted EBITDA is defined as EBITDA further adjusted to exclude non-cash and non-recurring items that management believes are not indicative of the Company’s core operating performance. For the year ended December 31, 2025, such adjustments primarily include the loss from the change in fair value of the PIPE warrant liability of $25,549,272 and the loss related to deconsolidation. The change in fair value of the PIPE warrant liability is a non-cash item arising from the remeasurement of derivative liabilities in accordance with ASC 815 and is significantly impacted by changes in the Company’s stock price and warrant terms, including reset features. Management believes that EBITDA and Adjusted EBITDA provide useful supplemental information to investors regarding the Company’s operating performance; however, these measures have limitations and should not be considered in isolation or as a substitute for net income (loss) or other financial measures prepared in accordance with U.S. GAAP. For the years ended December 31 2025 2024 Net income (loss) (24,817,342 ) (776,960 ) Add: Interest expense 24,616 7,943 Add: Income tax expense 4,651 7,824 Add: Depreciation and amortization - - EBITDA (24,788,075 ) (761,193 ) Add: Loss from change in fair value of PIPE warrant liability 25,549,272 - Add: Loss on deconsolidation 5,310 - Adjusted EBITDA 766,507 (761,193 ) Off-Balance Sheet Arrangements As of December 31, 2025, the Company does not have any material off-balance sheet arrangements as defined under Item 303 of Regulation S-K. Historically, the Company utilized variable interest entities (VIEs) to conduct certain e-commerce operations. These VIEs were consolidated in prior periods; however, following the termination of contractual arrangements in December 2025, the Company deconsolidated these entities. As a result, the Company no longer has exposure to the assets, liabilities, or operations of these entities beyond any residual contractual relationships. The Company does not have any material guarantees, retained interests in transferred assets, special purpose entities, or undisclosed commitments that would be considered off-balance sheet arrangements. Management believes that the absence of significant off-balance sheet arrangements reduces the Company’s exposure to contingent liabilities and enhances transparency in its financial reporting. Quantitative and Qualitative Disclosures About Market Risk The Company is exposed to certain market risks in the normal course of business, including foreign currency risk, interest rate risk, and general economic risk. Foreign Currency Risk A portion of the Company’s transactions are denominated in currencies other than the U.S. dollar, particularly Renminbi (RMB). As a result, fluctuations in exchange rates may affect revenue, cost of revenue, and operating expenses when translated into U.S. dollars. A strengthening of the U.S. dollar relative to foreign currencies may reduce reported revenue and margins, while a weakening of the U.S. dollar may have the opposite effect. The Company does not currently use derivative instruments to hedge foreign currency risk. Interest Rate Risk The Company’s exposure to interest rate risk is limited due to the absence of significant interest-bearing debt. Interest income is earned on cash balances, and changes in interest rates may affect the amount of interest income recognized. However, this exposure is not considered material. Concentration Risk The Company is exposed to concentration risk due to its reliance on related-party transactions for both revenue and procurement. Changes in the financial condition or operating performance of these related parties could materially affect the Company’s results. Sensitivity Analysis A hypothetical 10% change in foreign exchange rates would not have a material impact on the Company’s financial position based on current exposure levels; however, this may change as the Company expands its international operations. 38 Table of Contents Inflation and Economic Conditions The Company’s operations are subject to the impact of inflation and broader economic conditions, which may affect both costs and demand. Cost Impacts Inflation may increase the cost of components, manufacturing, logistics, and labor. These cost increases may not be fully recoverable through price adjustments, particularly in a competitive market environment where pricing pressure is significant. Demand Impacts The Company’s products are generally considered discretionary consumer purchases. As a result, economic downturns, reduced consumer confidence, or higher interest rates may negatively impact demand for the Company’s products. Supply Chain Considerations Global supply chain conditions, including component availability and shipping costs, may also affect the Company’s ability to procure inventory and maintain margins. The Company actively monitors these factors and seeks to mitigate their impact through pricing strategies, cost management initiatives, and supply chain optimization. Conclusion The Company’s results for the year ended December 31, 2025 reflect a significant transformation in its business model and financial profile. While total revenue declined compared to the prior year, the Company achieved substantial improvements in gross margin and operating efficiency. This improvement was driven by a strategic shift away from lower-margin, inventory-intensive operations toward higher-margin revenue streams, including revenue-sharing arrangements and service-based offerings. The Company also strengthened its liquidity position through the completion of the SPAC transaction and related financing activities, enabling it to reduce reliance on related-party financing and improve its overall capital structure. Despite these improvements, the Company continues to face risks and uncertainties, including reliance on related-party transactions, exposure to e-commerce platform dynamics, and sensitivity to macroeconomic conditions. Future performance will depend on the Company’s ability to sustain margin improvements, diversify revenue streams, and manage working capital efficiently. Management believes that the Company is well-positioned to pursue its strategic objectives, supported by improved financial flexibility, a more efficient operating model, and opportunities for growth in higher-margin service offerings. ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk Not required for smaller reporting companies. 39 Table of Contents