FiEE, Inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS FIEE, INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets (Unaudited) March 31, 2026 December 31, 2025 ASSETS Current assets Cash $ 4,579,910 $ 3,084,461 Accounts receivable 1,422,013 2,110,715 Other receivables, net 18,051 1,217,692 Prepaid expenses and other current assets 218,882 199,309 Total current assets 6,238,856 6,612,177 Property, equipment and software, net 900,020 366,439 Intangible assets 3,205,982 3,529,835 Operating lease right-of-use assets, net 15,575 31,004 Deferred tax assets 26,731 - Other assets 1,452,799 231,680 Total assets $ 11,839,963 $ 10,771,135 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities Accounts payable $ 263,970 $ 511,206 Contract liabilities 668,903 1,497,721 Accrued expenses and other current liabilities 1,138,505 1,169,737 Income tax payables 856,870 972,743 Current maturities of operating lease liabilities 14,953 30,350 Total current liabilities 2,943,201 4,181,757 Total liabilities 2,943,201 4,181,757 Commitments and Contingencies (Note 6) Stockholders’ equity Preferred Stock, authorized: 10,000,000 shares at $ 0.001 par value, including 3,000,000 shares designated as Series A Convertible Preferred Stock at $ 0.001 par value; 2,305,357 Series A shares issued and outstanding at March 31, 2026 and December 31, 2025, aggregate liquidation preference of $ 3,227,500 at March 31, 2026 and December 31, 2025, respectively 1,639,779 1,639,779 Common Stock, authorized: 60,000,000 shares at $ 0.01 par value; issued and outstanding: 8,328,598 shares at March 31, 2026 and 7,934,122 shares at December 31, 2025, respectively 83,286 79,341 Additional paid-in capital 102,488,505 100,500,280 Accumulated deficit ( 95,270,063 ) ( 95,621,579 ) Accumulated other comprehensive loss ( 44,745 ) ( 8,443 ) Total stockholders’ equity 8,896,762 6,589,378 Total liabilities and stockholders’ equity $ 11,839,963 $ 10,771,135 See accompanying notes to the unaudited condensed consolidated financial statements. 1 FIEE, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (Unaudited) Three Months Ended March 31, 2026 2025 Revenues $ 2,121,989 $ 125 Cost of revenues 627,745 750 Gross profit 1,494,244 ( 625 ) Operating expenses: Selling and marketing 34,339 - General and administrative 996,873 340,496 Research and development 36,587 30,000 Total operating expenses 1,067,799 370,496 Operating income (loss) 426,445 ( 371,121 ) Other income (expense): Interest income (expense), net - ( 2,789 ) Foreign currency exchange Income 34,995 - Other, net 26,905 - Total other income (expense) 61,900 ( 2,789 ) Income (loss) before income taxes 488,345 ( 373,910 ) Income tax expense 136,829 - Net income (loss) $ 351,516 $ ( 373,910 ) Allocation to participating preferred stock ( 101,605 ) - Net Income (loss) attributable to common stockholders 249,911 ( 373,910 ) Basic earnings (loss) per common share $ 0.03 $ ( 0.10 ) Diluted earnings (loss) per common share $ 0.02 $ ( 0.10 ) Weighted-average number of common shares outstanding: Basic 7,938,505 3,713,792 Diluted 10,440,594 3,713,792 Net income (loss) $ 351,516 $ ( 373,910 ) Other comprehensive income (loss), net of tax: Foreign currency translation adjustment ( 36,302 ) - Total comprehensive income (loss) $ 315,214 $ ( 373,910 ) See accompanying notes to unaudited condensed consolidated financial statements. 2 FIEE, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Stockholders’ Equity (Deficit) (Unaudited) For the three months ended March 31, 2026 Preferred Stock Common Stock Additional Paid In Accumulated Accumulated Other Comprehensive Shares Amount Shares Amount Capital Deficit Loss Total Balance at December 31, 2025 2,305,357 $ 1,639,779 7,934,122 $ 79,341 $ 100,500,280 $ ( 95,621,579 ) $ ( 8,443 ) $ 6,589,378 Net income - - - - - 351,516 - 351,516 Foreign currency translation - - - - - - ( 36,302 ) ( 36,302 ) Stock-based compensation - - - - 46,000 - - 46,000 Common Stock Issuance, net of issuance cost - - 394,476 3,945 1,942,225 - - 1,946,170 Balance at March 31, 2026 2,305,357 $ 1,639,779 8,328,598 $ 83,286 $ 102,488,505 $ ( 95,270,063 ) $ ( 44,745 ) $ 8,896,762 See accompanying notes to unaudited condensed consolidated financial statements. 3 FIEE, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Stockholders’ Equity (Deficit) (Unaudited) For the three months ended March 31, 2025 Preferred Stock Common Stock Additional Paid In Accumulated Accumulated Other Comprehensive Shares Amount Shares Amount Capital Deficit Income Total Balance at December 31, 2024 2,305,357 $ 1,639,779 3,713,792 $ 37,138 $ 94,886,147 $ ( 96,694,013 ) $ 957 $ ( 129,992 ) Net loss - - - - - ( 373,910 ) - ( 373,910 ) Balance at March 31, 2025 2,305,357 $ 1,639,779 3,713,792 $ 37,138 $ 94,886,147 $ ( 97,067,923 ) $ 957 $ ( 503,902 ) See accompanying notes to unaudited condensed consolidated financial statements. 4 FIEE, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (Unaudited) Three Months Ended March 31, 2026 2025 Cash flows from operating activities: Net income (loss) $ 351,516 $ ( 373,910 ) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 344,010 49,851 Amortization of right-of-use assets 14,818 9,939 Non-cash interest expense - 619 Stock-based compensation 46,000 - Deferred taxes ( 26,731 ) - Allowance for credit losses - other receivables 71,702 - Changes in operating assets and liabilities: Accounts receivable ( 1,031,238 ) - Other receivables 1,127,939 - Prepaid expenses and other current assets ( 63,374 ) 40,408 Other assets 4,002 ( 87,631 ) Accounts payable 106,150 ( 42,648 ) Contract liabilities ( 828,818 ) - Income tax payable ( 115,873 ) - Accrued expenses and other current liabilities 81,272 27,144 Due to related party 5,170 Operating lease liabilities ( 14,787 ) - Net cash provided by (used in) operating activities 66,588 ( 371,058 ) Cash flows from investing activities: Purchase of property, equipment and software ( 518,047 ) - Net cash used in investing activities ( 518,047 ) - Cash flows from financing activities: Proceeds from the issuance of common stock 1,999,993 - Payment of deferred financing costs ( 25,000 ) - Proceeds from debt - 350,000 Net cash provided by financing activities 1,974,993 350,000 Effect of foreign exchange rate changes on cash ( 28,085 ) - Net increase (decrease) in cash 1,495,449 ( 21,058 ) Cash - Beginning 3,084,461 30,162 Cash - Ending $ 4,579,910 $ 9,104 Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ - $ - Income taxes $ 271,717 $ - Supplemental disclosures of non-cash activities: Addition to property, equipment and software through reclassification of prior year prepayment $ 44,613 $ - Noncash settlement of accounts receivable through customers’ payments made directly to accounts payable, other payables, and investment deposits. $ 1,719,940 $ - See accompanying notes to the unaudited condensed consolidated financial statements. 5 FIEE, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) (1) NATURE OF OPERATIONS AND BASIS OF PRESENTATION FiEE, Inc. (formerly, Minim, Inc.) was founded in 1977 as a networking company and pivoted into delivering intelligent software to protect and improve the WiFi connections we depend on to work, learn, and live. FiEE held the exclusive global license to design, manufacture, and sell consumer networking products under the Motorola brand until 2023. Our cable and WiFi products, with an intelligent operating system and bundled mobile app, were sold in leading retailers and e-commerce channels in the United States (“U.S.”). Our artificial intelligence (“AI”)-driven cloud software platform and applications make network management and security simple for home and business users, as well as the service providers that assist them—leading to higher customer satisfaction and decreased support burden. On February 27, 2025, the Company filed with the Secretary of State of the State of Delaware a Certificate of Amendment to its Amended and Restated Certificate of Incorporation to change the name of the Company from Minim, Inc. to FiEE, Inc., effective as of February 27, 2025. During the three months ended March 31, 2026, the Company incorporated two new wholly owned subsidiaries: FiEE Channel Limited in Hong Kong on March 5, 2026, and FiEE Singapore Pte. Ltd. in Singapore on March 26, 2026. As of March 31, 2026, neither subsidiary had commenced operations. FiEE, Inc. and its wholly owned subsidiaries—FiEE (HK) Limited (incorporated in March 2025), Houren-Geiju Kabushikikaisha (acquired in November 2025), MTRLC LLC, Minim Asia Private Limited, FiEE Channel Limited, and FiEE Singapore Pte. Ltd.—are herein collectively referred to as “FiEE” or the “Company.” We continue to grow and expand our operations as a digital service provider focused on integrating AI and data analytics into content creation and brand management. We offer a wide range of Software as a Service (“SaaS”) solutions through a cloud-based platform designed to support our clients in developing, managing, and optimizing their digital presence across global platforms, including customized graphic and posts, short videos, and editorial calendars aligned with brand goals. Additionally, we offer comprehensive software development and maintenance services, delivering custom software solutions from system design and development to deployment and post-launch maintenance. On November 30, 2025, we completed the acquisition of Houren-Geiju Kabushikikaisha (“HGK”), a Japanese technology company specializing in digital authentication services for artworks, leveraging AI and blockchain technology to provide artwork authentication, certification, and display services for individual and corporate clients. This acquisition introduces AI image recognition and blockchain authentication technologies to the Company’s service portfolio, further bolstering our technological capabilities and optimizing our comprehensive brand management solutions for customers. Equity Investment and Loan On March 23, 2026, FiEE (HK) Limited (“FiEE HK”) entered into an Investment Agreement (the “Investment Agreement”) by and among FiEE HK, Guangzhou Yinlian Culture Co., Ltd., a limited liability company formed under the laws of the People’s Republic of China (the “PRC”) (“Yinlian Culture”), Guangzhou Maltose Culture Communication Co., Ltd., a limited liability company formed under the laws of the PRC (“Maltose Culture”), Guangzhou Qingniao Culture Co., Ltd., a limited liability company formed under the laws of the PRC (“Qingniao Culture”), Shenzhen Yaojin Creative Media Co., Ltd., a limited liability company formed under the laws of the PRC (“Yaojin Media”), Cai Yuanyao, Zhang Dingcheng, and Zhang Rong, pursuant to which (i) FiEE HK agreed to acquire a 51% equity interest (and 60% of the voting rights) in Yinlian Culture, for an aggregate purchase price of $51,000 (the “Equity Investment”) and (ii) FiEE HK, or an entity designated by FiEE HK, will provide a zero-interest convertible loan to Yinlian Culture in the principal amount of up to approximately $2.9 million (the “Loan” and, together with the Equity Investment, the “Transactions”). 6 The Loan is to be funded in three tranches: (i) approximately $720,000 to be funded within 14 business days following the full payment for the Equity Investment, provided that Yinlian Culture has delivered its financial seals and bank-related documents (including online banking access) to FiEE HK; (ii) approximately $720,000 to be funded within one month of the simultaneous satisfaction of the following conditions: (a) Yinlian Culture and its subsidiaries and controlled entities (collectively, the “Group”) have achieved positive consolidated net profit after tax within six months from the date of the Investment Agreement, (b) the Group has provided FiEE HK with a profit forecast for the following 12 months following the date of the Investment Agreement that is acceptable to FiEE HK and reflects positive consolidated net profit after tax, and (c) the Group has undertaken in writing to meet such performance targets within the agreed timeframe; and (iii) approximately $1.44 million to be funded within one month of the realization of the 12-month profit forecast described in clause (ii)(b) above. Under the terms of the Loan, FiEE HK, or an entity designated by FiEE HK, has the option, exercisable at any time by written notice, to either (i) require Yinlian Culture to repay all or any portion of the Loan in cash, or (ii) convert all or any portion of the Loan into additional equity in Yinlian Culture, which, upon full conversion, would result in FiEE HK and its designated entities collectively holding 60% of the total equity interests in Yinlian Culture. Yinlian Culture was incorporated on February 11, 2026 to facilitate the investment in Maltose Culture. Through this investment, the Company aims to combine Maltose Culture’s music expertise with its AI capabilities to build an advanced AI music infrastructure and strengthen its position in the global music revolution. In connection with the signing of the Investment Agreement, FiEE HK, Yinlian Culture, Maltose Culture, Qingniao Culture, Yaojin Media, Cai Yuanyao, Zhang Dingcheng, and Zhang Rong entered into a Shareholder Agreement, dated as of March 23, 2026, governing the rights and obligations of the shareholders of Yinlian Culture, including, but not limited to, board composition and governance, voting rights, dividend rights and distribution thresholds, liquidation preference, and transfer restrictions. The closing of the Equity Investment is expected to occur before June 30, 2026, upon which FiEE HK will acquire 51% of the equity interests (and 60% of the voting rights) in Yinlian Culture and the VIE Agreements (as defined below) will become effective. The closing of the Loan is expected to occur following the satisfaction of the applicable conditions precedent described above. As of March 31, 2026, the Company had paid approximately CNY 7.6 million (approximately $ 1.1 million) to Maltose Culture in connection with the proposed convertible loan. The funds are held in a separate designated bank account and are regularly reviewed by the Company for appropriate use. VIE Agreements Maltose Culture is an AI-empowered music ecosystem that integrates content creation, intelligent platform distribution, and next-generation home entertainment. At or immediately prior to the closing of the Equity Investment, Maltose Culture is owned 40% by Zhang Dingcheng and 60% by Yang Kai, the spouse of Cao Yu, who serves as Chief Financial Officer and a member of the board of directors of the Company (the “Board”). In order to establish effective control over, and the right to receive the economic benefits of, Maltose Culture, pursuant to the requirements of PRC law, Yinlian Culture entered into the following agreements (collectively, the “VIE Agreements”) with Maltose Culture, Yang Kai, and Zhang Dingcheng. The VIE Agreements were signed on March 23, 2026, and the related business registration changes were completed on March 26, 2026. Exclusive Purchase Option Agreement Pursuant to the Exclusive Purchase Option Agreement, dated as of March 23, 2026, in connection with the signing of the Investment Agreement, each of Yang Kai and Zhang Dingcheng granted to Yinlian Culture an exclusive and irrevocable option to acquire 100% of the equity interests of Maltose Culture at the lowest price permitted by applicable PRC law, together with the right to acquire all of the assets of Maltose Culture. The option may be exercised by Yinlian Culture at any time, subject to applicable PRC regulatory requirements and approvals. 7 Irrevocable Proxy Agreement Pursuant to the Irrevocable Proxy Agreement, dated as of March 23, 2026, in connection with the signing of the Investment Agreement, each of Yang Kai and Zhang Dingcheng irrevocably appointed Yinlian Culture as their exclusive proxy to exercise all shareholder voting rights with respect to their respective equity interests in Maltose Culture, including without limitation all voting rights, the right to appoint directors and senior management, and the right to transfer, pledge, or otherwise dispose of their equity interests. The proxy is irrevocable and remains effective for the entire operating term of Maltose Culture, unless earlier terminated by Yinlian Culture. Business Cooperation Agreement Pursuant to the Business Cooperation Agreement, dated as of March 23, 2026, in connection with the signing of the Investment Agreement, Yinlian Culture agreed to provide exclusive consulting and technical services to Maltose Culture and to license certain intellectual property to Maltose Culture on a non-exclusive, non-transferable basis, in exchange for service fees payable by Maltose Culture to Yinlian Culture. Equity Pledge Agreement Pursuant to the Equity Pledge Agreement, dated as of March 23, 2026, in connection with the signing of the Investment Agreement, each of Yang Kai and Zhang Dingcheng pledged all of their respective equity interests in Maltose Culture to Yinlian Culture as security for the performance of all of their obligations and Maltose Culture’s obligations under the VIE Agreements. Spousal Consent In connection with the signing of the Investment Agreement, Cao Yu executed a Spousal Consent, dated as of March 23, 2026, acknowledging and consenting to Yang Kai’s entry into and performance of the VIE Agreements, and confirming that she has no claim to the equity interests of Maltose Culture held by Yang Kai. Basis of Presentation The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with the requirements of the U.S. Securities and Exchange Commission (“SEC”) for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by accounting principles generally accepted in the U.S. (“U.S. GAAP”) can be condensed or omitted. In the opinion of management, the financial statements include all normal and recurring adjustments that are considered necessary for the fair presentation of the Company’s financial position and operating results. All intercompany balances and transactions have been eliminated in consolidation. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025. The results of the Company’s operations can vary during each quarter of the year. Therefore, the results and trends in these interim financial statements may not be the same as those for the full year or any future periods. Use of Estimates The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expense during the reporting period. These judgments, estimates and assumptions made by the Company include, but are not limited to revenue recognition, expected credit losses, contract liabilities, valuation allowance for deferred tax assets, fair value of acquired assets, valuation of warrants and stock-based compensation. The Company evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors and adjusts those estimates and assumptions when facts and circumstances dictate. Actual results may differ from those estimates under different assumptions or conditions and the differences may be material. 8 Liquidity The Company’s operations have historically been primarily financed through the issuance of its common stock, $0.01 par value per share (the “Common Stock”), and preferred stock, $0.001 par value per share (the “Preferred Stock”). Since inception, the Company has incurred significant losses and negative cash flows from operations. The Company began generating operating profit in the fourth quarter of 2025 and has continued to do so thereafter. During the three months ended March 31, 2026, the Company reported a net income of $352 thousand 351,516 , a positive working capital of $ 3.3 million and an increase in cash of $ 1.5 million. The increase in cash was primarily attributable to $67 thousand 66,588 of cash provided by operating activities and $2.0 million 1,974,993 of cash provided by financing activities, partially offset by $518 thousand ( 518,047 ) of cash used in investing activities. As of March 31, 2026, the Company had an accumulated deficit of $95.3 million ( 95,270,063 ) and cash on hand of $4.6 million 4,579,910 . Although the Company generated net income, positive working capital, and positive operating cash flows during the three months ended March 31, 2026 following changes in management and business strategy, it has incurred significant losses in prior years and has a limited history of profitability. These conditions raise substantial doubt about the Company’s ability to continue as a going concern one year from the date the condensed consolidated financial statements were issued. The Company will continue to monitor its costs in relation to its sales and adjust its cost structure accordingly. The Company’s condensed consolidated financial statements as of March 31, 2026 do not include any adjustments to the carrying amounts or classification of assets, liabilities, and reported expenses that may be necessary should the Company be unable to continue as a going concern. If the Company is unable to raise additional capital, it may be forced to liquidate its assets at amounts less than their carrying values, and investors could lose all or a portion of their investment. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Company’s significant accounting policies are disclosed in its Annual Report on Form 10-K for the year ended December 31, 2025. The Company’s significant accounting policies have no material changes during the three months ended March 31, 2026, except for the following updates resulting from transactions that occurred during the three months ended March 31, 2026. Property, Equipment and Software Property, equipment and software primarily consisted of equipment, vehicles, land, building and internal-use software customized by a vendor, which are stated at cost, and are depreciated or amortized on a straight-line basis over their estimated useful lives. Maintenance and repairs are charged to expense as incurred. Significant improvements that substantially enhance the useful life of an asset are capitalized and depreciated. When assets are retired or disposed of, the cost together with related accumulated depreciation is removed from the balance sheet and any resulting gain or loss is reflected in the Company’s statements of operations in the period realized. Costs incurred to develop internal-use software are capitalized only during the application development stage. Schedule of property, equipment and software useful life Category Estimated useful life Internal use software 3 years Equipment 3 - 5 years Vehicles 5 years Building 7 years Land Indefinite Recently Issued Accounting Standards There have been no other new accounting pronouncements that have significance, or potential significance, to the Company’s financial position, results of operations and cash flows . 9 (3) REVENUE AND OTHER CONTRACTS WITH CUSTOMERS The Company adopted ASC 606, Revenue from Contracts with Customers, which requires a five-step model to recognize revenue from customer contracts. The five-step model requires entities to exercise judgment when considering the terms of contracts, including: (1) identifying the contracts or agreements with a customer; (2) identifying the performance obligations in the contract or agreement; (3) determining the transaction price; (4) allocating the transaction price to the separate performance obligations; and (5) recognizing revenue as each performance obligation is satisfied. The Company applies the five-step model to contracts only when it is probable that the Company will collect the consideration to which it is entitled in exchange for the services it transfers to its clients. Revenues from SaaS service- Multi-Channel Network (“MCN”) Digital Service Since March 2025, the Company has expanded SaaS operations as a digital service provider, delivering full-cycle services to brand clients through legally binding agreements. The Company offers full-service account management, content production, and targeted promotion to grow followers across key platforms. Service packages are customizable via the SaaS portal. Customers may purchase value-added services with or after their purchases of basic package. The Company’s services comprise two distinct performance obligations: (1) the basic service, which represents a single performance obligation as the promises for account setup, SaaS platform access, account management, and basic digital content creation and publishing are highly interdependent and bundled together; and (2) the value-added services, which represents a performance obligation for additional digital content created and customized to meet the customer’s special request. Each performance obligation has a standalone transaction price. The Company recognizes revenues from basic services ratably over the contract term beginning on the commencement date of each contract. The revenues from value-added services are recognized at a point in time when customers approve or accept the value-added services or system automatically approves whichever is later. The Company requires an upfront payment for the services, which is non-refundable upon execution of the contract. Customers retain the right to terminate the contract prior to its expiration date, subject to the early termination fees, including information transfer fee and fan development fee. Revenues from Software Service The Company enters into bundled arrangements that typically include the sale of on-premise software licenses, standard or customized modules, and maintenance and support (“M&S”) services. These arrangements are evaluated to determine whether the promises represent distinct performance obligations. The standard or customized modules are highly interdependent and interrelated with the software license and are therefore combined with the license as a single performance obligation, while the M&S services are capable of being distinct and are accounted for as a separate performance obligation. The M&S services are provided free of charge for a specified contract period, typically encompassing the first year of service following software delivery. The transaction price is allocated to each performance obligation based on their relative stand-alone selling prices (“SSP”). The SSP for the combined software license and customized or standard modules, and M&S services is determined using the adjusted market assessment approach, which considers market conditions, competitive pricing, the Company’s market position, expected profit margins, and cost structure. For customized arrangements only, contracts include retention fees that represent variable consideration, as their payment is contingent upon no major defects being identified within a specified period. These retention fees are excluded from the initial transaction price. The related revenue is recognized only when it’s probable that a significant reversal will not occur. Contracts for software licensing and M&S services generally include a renewal option for M&S services; however, the renewal option to acquire additional services is neither offered free of charge nor at a discount and accordingly does not represent a material right. The Company provides assurance-type warranties to ensure that the delivered software complies with agreed-upon specifications. These warranties do not constitute a separate performance obligation as they cannot be purchased separately and do not provide a service beyond remedying defects to bring the software to the specified standard. 10 The Company’s contracts typically specify a payment schedule whereby payments from the customer are linked to the signing of the contract and the achievement of specific milestones for customized arrangements, while for standard arrangements, payment is due after final acceptance with no prepayment or milestone-based payments. Contracts are generally fixed price, and the Company has elected the practical expedient not to adjust the promised consideration for the effects of a significant financing component when the period between transfer of goods or services and customer payment is one year or less. For contracts with customized modules, revenue from the combined software license and customized modules is recognized over time as the Company fulfils its performance obligations by developing and enhancing the software assets throughout the project period. The Company recognizes revenue using the output method based on the measurements of the value of the services transferred to date in relation to total performance obligation promised. For contracts with standard modules, revenue from the combined software license and standard modules is recognized at a point in time upon final delivery and customer acceptance. Revenue from maintenance and support services for both types is recognized over time on a straight-line basis over the M&S contract period. This recognition pattern reflects the continuous transfer of services to the customer, who simultaneously receives and consumes the benefits of these services throughout the service period. Revenues from Digital Authentication Service The Company provides digital authentication services for artworks, leveraging AI and blockchain technology. Services include microstructure analysis, AI image comparison, authenticity determination, blockchain registration, and issuance of digital authentication reports. Service packages are offered in standard and expedited editions, with fees calculated based on the dimensions of the artwork and required to be fully paid in advance. The Company’s services comprise a single performance obligation, as the promised services are highly interdependent and integrated to deliver a conclusive authentication outcome. The transaction price is fixed at contract inception. Revenue is recognized at a point in time upon delivery of the final digital authentication report and blockchain certificate to the client, when the client obtains control of the completed authentication package. Remaining Performance Obligations The remaining performance obligations represent the transaction price allocated to performance obligations that are unsatisfied or partially unsatisfied as of the end of the reporting period. Unsatisfied and partially unsatisfied performance obligations consist of contract liabilities and non-cancellable backlog. Non-cancellable backlog includes service orders for which customer purchase orders have been accepted, that are scheduled or in the process of being scheduled for delivery or performance, and that are not yet invoiced. As of March 31, 2026 and December 31, 2025, the remaining performance obligations related to MCN digital services purchased and paid for in advance by customers for basic and value-added packages amounted to $ 568,973 and $ 1,497,721 , respectively, equaling the balances of contract liabilities. These amounts are expected to be recognized as revenue within the next 12 months. The remaining performance obligations for software service as of March 31, 2026 and December 31, 2025 were $ 181,521 and $ 521,082 , respectively, excluding retention fees. These amounts relate to unsatisfied performance obligations for the combined software license and customized modules, which are expected to be recognized as revenue upon the completion and customer acceptance of specific milestones, predominantly within the next three months. As of March 31, 2026 and December 31, 2025, the remaining performance obligations related to digital authentication services purchased and paid for in advance by customers amounted to $ 99,930 and $ 0 , respectively, equaling the balances of contract liabilities. These amounts are expected to be recognized as revenue within the next one month. 11 Contract Costs The Company recognizes the incremental costs of obtaining a contract with a customer if the Company expects the benefit of those costs to be longer than one year. The Company has determined that certain sales commissions meet the requirements to be capitalized, and the Company amortizes these costs on a consistent basis with the pattern of transfer of the goods and services in the contract. Total capitalized costs to obtain a contract were immaterial during the periods presented and are included in other current and long-term assets on our condensed consolidated balance sheets if any. The Company applies a practical expedient to expense costs as incurred for costs to obtain a contract when the amortization period is one year or less. These costs include sales commissions on SaaS – MCN and software contracts with a contract period of one year or less as sales commissions on contract renewals are commensurate with those paid on the initial contract. Contract Balances The Company records accounts receivable when it has an unconditional right to the consideration. The accounts receivable balances were $ 1,422,013 and $ 2,110,715 as of March 31, 2026 and December 31, 2025, respectively. Contract liabilities are recorded when customers remit payment prior to revenue recognition, representing the Company’s obligation to transfer services in the future. Liabilities arise upon customer order placement. The contract liabilities balances were $ 668,903 and $ 1,497,721 as of March 31, 2026 and December 31, 2025, respectively. Disaggregation of Revenue The following table sets forth our revenues by distribution channel: Schedule of disaggregation of revenue Three Months Ended March 31, 2026 2025 Online and offline channels $ 2,121,989 $ 125 $ 2,121,989 $ 125 The following table sets forth our revenues by product: Schedule of revenues Three Months Ended March 31, 2026 2025 SaaS – MCN digital services $ 1,093,336 $ 125 Software services 589,959 - Digital authentication services 438,694 - $ 2,121,989 $ 125 The following table sets forth our revenues by the timing of revenue recognition: Schedule of revenue recognized Three Months Ended March 31, 2026 2025 Recognized at a point in time $ 1,476,473 $ - Recognized over time 645,516 125 $ 2,121,989 $ 125 12 (4) BALANCE SHEET COMPONENTS Property, equipment and software, net Property, equipment and software, net consists of the following: Schedule of equipment As of March 31, 2026  As of December 31, 2025 Internal use software $ 269,194 $ 271,088 Equipment 8,065 8,137 Vehicles 132,916 133,852 Building 146,142 - Land 419,420 - Total property, equipment and software 975,737 413,077 Accumulated depreciation and amortization ( 75,717 ) ( 46,638 ) Total property, equipment and software, net $ 900,020 $ 366,439 Depreciation and amortization expense was $ 29 thousand and $ 50 thousand for the three months ended March 31, 2026 and 2025, respectively. Intangible assets As part of the asset acquisitions completed on June 30, 2025 and November 30, 2025, the amount allocated to the intangible assets acquired was approximately $ 1.3 million and $ 2.5 million, respectively, primarily consisting of acquired proprietary software, which represent a group of copyrights, associated patents and software source codes that are expected to provide future economic benefits to the Company. The allocation of the purchase price was performed on a relative fair value basis in accordance with ASC 805-50. The acquired group of proprietary software is being amortized over three 3 years, its estimated useful life. Intangible assets consisted of the following at March 31, 2026 and December 31, 2025: Schedule of intangible assets As of March 31, 2026 As of December 31, 2025 Gross Carrying Amount Accumulated Amortization Net Gross Carrying Amount Accumulated Amortization Net Acquired group of proprietary software $ 3,802,676 $ ( 596,694 ) $ 3,205,982 $ 3,811,598 $ ( 281,763 ) $ 3,529,835 $ 3,802,676 $ ( 596,694 ) $ 3,205,982 $ 3,811,598 $ ( 281,763 ) $ 3,529,835 Amortization expense was $ 315 thousand and $ 0 thousand in the three months ended March 31, 2026 and 2025, respectively. Estimated amortization expenses for the future years are as follows: Schedule of Amortization Years ending December 31, Amortization 2026 $ 942,999 2027 1,266,852 2028 996,131 Total $ 3,205,982 13 Other receivables, net Other receivables, net primarily consisted of $ 18,051 and $ 1,132,558 as of March 31, 2026 and December 31, 2025, respectively, representing funds temporarily held in a settlement platform and pending transfer to the Company’s bank account. In addition, other receivables, net included $ 70,966 and $ 85,134 as of March 31, 2026 and December 31, 2025, respectively, due from third‑party entities. The entire $70,966 balance due from a third‑party entity as of March 31, 2026 was fully reserved. Prepaid and other current assets Prepaid and other current assets consist of the following: Schedule of inventories March 31, 2026 December 31, 2025 Insurance fee $ 83,717 $ 53,015 Cloud hosting fee 58,687 78,414 Prepayment for property purchase - 44,613 Nasdaq annual listing fee 42,000 - Other 34,478 23,267 Total prepaid and other current assets $ 218,882 $ 199,309 Other assets Other assets consist of the following: Schedule of other assets March 31, 2026 December 31, 2025 Insurance fees $ 62,481 $ 66,483 Investment deposit to a related party (1) 1,097,098 - Deposits 15,091 15,197 Deferred offering costs 278,129 150,000 Total other assets $ 1,452,799 $ 231,680 (1) The Company made an investment deposit of $1,097,098 to Maltose Culture, which is considered a related party as it is 60% owned by Yang Kai, the spouse of Cao Yu, the Company’s Chief Financial Officer and director. The deposit was made in connection with a convertible loan toward the Transactions contemplated under the Investment Agreement (see Note 1 -Equity Investment and Loan). Accrued expenses and other current liabilities Accrued expenses and other current liabilities consist of the following: Schedule of accrued expenses March 31, 2026 December 31, 2025 Payroll & related benefits $ 367,739 $ 305,789 Professional fees 545,991 271,501 Sales allowances - 26,905 Sales and use tax 81,708 81,708 Other payable to Yixuntong (1) 114,959 435,957 Other (2) 28,108 47,877 Total accrued expenses and other current liabilities $ 1,138,505 $ 1,169,737 (1) As of March 31, 2026, other payables to Yixuntong primarily included $94 thousand for a software development and $21 thousand for advanced cloud hosting fee. (2) There was a balance of $7,232 due to a stockholder of the Company, Cao Yu, which represents the amount paid by Cao Yu to support the Company’s normal operating activities. The remaining balance was primarily for the reimbursement payable to employees. 14 (5) LEASES The Company’s newly established Hong Kong subsidiary executed new office lease agreements in March 2025 and the Company’s newly acquired Japan subsidiary executed office lease agreements in October 2024, which expire in July and September 2026, respectively. The Company recognizes lease expense for these leases on a straight-line basis over the lease term. Right-of-use assets and lease liabilities are recorded on the balance sheet for all leases, except leases with an initial term of 12 months or less. The components of lease expenses were as follows: Schedule of components of lease costs Three months ended March 31, 2026 2025 Operating lease costs $ 15,547 $ 5,276 Cash paid for amounts included in the measurement of lease liabilities $ 12,124 $ - The weighted-average remaining lease term and discount rate were as follows: Schedule of weighted average remaining lease term and discount rate Three months ended March 31, 2026 2025 Operating leases: Weighted average remaining lease term (years) 0.26 0.06 Weighted average discount rate 4.63 % 4.65 % (6 ) COMMITMENTS AND CONTINGENCIES (a) Commitments Except as disclosed elsewhere in the accompanying notes, the Company had no other material commitments as of March 31, 2026. (b) Contingencies Contingencies on potential lawsuits The Company is party to various lawsuits and administrative proceedings arising in the ordinary course of business. The Company evaluates such lawsuits and proceedings on a case-by-case basis, and its policy is to vigorously contest any such claims which it believes are without merit. The Company reviews the status of its legal proceedings and records a provision for a liability when it is considered probable that a liability has been incurred and the amount of the loss can be reasonably estimated. This review is updated periodically as additional information becomes available. If both criteria are not met, the Company reassesses whether there is at least a reasonable possibility that a loss, or additional losses, may be incurred. If there is a reasonable possibility that a loss may be incurred, the Company discloses the estimate of the amount of the loss or range of losses - that the amount is not material, or that an estimate of the loss cannot be made. At March 31, 2026, the Company is not currently a party to any legal proceedings that, if determined adversely to the Company, in management’s opinion, are currently expected to individually or in the aggregate have a material adverse effect on the Company’s business, operating results or financial condition taken as a whole. The Company expenses its legal fees as incurred. 15 In the ordinary course of its business, the Company is subject to lawsuits, arbitrations, claims, and other legal proceedings in connection with their business. Some of the legal actions include claims for substantial or unspecified compensatory and/or punitive damages. A substantial adverse judgment or other unfavorable resolution of these matters could have a material adverse effect on the Company’s financial condition, results of operations, and cash flows. Management believes that the Company has adequate legal defenses with respect to the legal proceedings to which it is a defendant or respondent, and that the outcome of these pending proceedings is not likely to have a material adverse effect on the financial condition, results of operations, or cash flows of the Company. However, the Company is unable to predict the outcome of these matters. Uncertainty on the business operations For the three months ended March 31, 2026, the Company’s operations depended in part on the continued service of its senior management, whose relationships with artists support the expansion and development of the Company’s primary customer base. The loss of key management or technical personnel could adversely affect the Company’s ability to maintain these relationships and develop its technology-driven services. (7) SIGNIFICANT CUSTOMER AND DEPENDENCY ON KEY SUPPLIERS During the three months ended March 31, 2026, the Company did not have any customers that individually accounted for 10 % or more of its total revenues. Three customers each accounted for approximately 11 % of the Company’s total accounts receivable as of March 31, 2026. One supplier accounted for approximately 75 % of the Company’s total accounts payable as of March 31, 2026. Other than the foregoing, no other customer or supplier accounted for 10% or more of the Company’s total revenue, accounts receivable, or accounts payable. During the year ended December 31, 2025, the Company had one customer that accounted for approximately 75 % of its total accounts receivable. The majority of this accounts receivable was acquired through the acquisition of HGK on November 30, 2025, and this customer contributed approximately 1% of the Company’s total revenue for the year ended December 31, 2025. Additionally, one supplier accounted for approximately 33 % of the Company’s total accounts payable as of December 31, 2025. Other than the foregoing, no other customer or supplier accounted for 10% or more of the Company’s total revenues, accounts receivable, or accounts payable for the year ended December 31, 2025. (8) CONVERTIBLE NOTE PAYABLE TO RELATED PARTY The Company entered into an unsecured promissory note (the “Convertible Note”) effective February 18, 2025, with David Lazar, a stockholder holding more than 10% of the Company’s outstanding shares and a former officer and director. Under the terms of the Convertible Note, the Company agreed to pay Mr. Lazar a principal amount of $ 300,000 , bearing interest at an annual rate of approximately 4.34 % , with the full principal and interest balance due on or before December 31, 2025. Upon stockholders’ approval, the Convertible Note will automatically convert into shares of the Company’s common stock at a conversion price of $ 0.25 per share. The Convertible Note to related party is accounted for as a single liability in accordance with Accounting Standards Update (ASU) 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. On October 27, 2025, at the Company’s 2025 Annual Meeting of Stockholders, stockholders approved the conversion of the Convertible Note. Pursuant to the terms of the Convertible Note, it automatically converted into 1,235,814 shares of common stock. As of December 31, 2025, the Convertible Note had no outstanding balance. (9) RELATED PARTY TRANSACTIONS The Company had the following related party transactions during the three months ended March 31, 2026 and 2025: ● Amount paid by a stockholder for operating activities and the balance due as of March 31, 2026. See Note 4 for details. ● Investment deposits paid to a related party. See Note 4 for details. ● Convertible note issued to a related party. See Note 8 for details. ● Equity transactions with stockholders. See Note 11 for details. 16 (10) EARNINGS (LOSS) PER SHARE The Company’s Series A Preferred Stock is considered a participating security because it has the right to participate in dividends with common stockholders on an as-converted basis. Accordingly, the Company applies the two-class method to compute basic and diluted earnings (loss) per share. Under the two-class method, net income is allocated between common stockholders and participating securities based on their respective rights to receive dividends as if all earnings for the period had been distributed. Net losses are not allocated to the Series A Preferred Stock, as holders do not have a contractual obligation to share in losses. Diluted earnings (loss) per share reflects the potential dilution that could occur if securities or other contracts to issue Common Stock were exercised or converted into Common Stock. Potentially dilutive securities include convertible Preferred Stock, warrants, and restricted shares. Warrants and restricted shares are included in diluted EPS using the treasury stock method. For convertible Preferred Stock that is a participating security, diluted EPS is calculated using the more dilutive of the two-class method or the if-converted method in accordance with ASC 260. Under the two-class method, the numerator used in diluted EPS is consistent with that used in basic EPS. Potential common shares are included only to the extent they are dilutive, and anti-dilutive securities are excluded. Earnings (loss) per share for the three months ended March 31, 2026 and 2025, respectively, were as follows: Schedule of net income (loss) per share Three months ended March 31, 2026 2025 Basic earnings per common share: Net income (loss) $ 351,516 $ ( 373,910 ) Less: Preferred stock dividend declared - - Income (loss) available for distribution $ 351,516 $ ( 373,910 ) Less: Income allocated to participating securities ( 101,605 ) - Net income (loss) available to common stockholders $ 249,911 $ ( 373,910 ) Weighted average basic shares outstanding 7,938,505 3,713,792 Basic earnings (loss) per common share $ 0.03 $ ( 0.10 ) Diluted earnings per common share: Net income (loss) available to common stockholders $ 249,911 $ ( 373,910 ) Weighted average basic shares outstanding 7,938,505 3,713,792 Dilutive effect related to warrants 2,308,814 - Dilutive effect related to restricted stocks with service conditions 193,275 - Weighted average diluted shares outstanding 10,440,594 3,713,792 Diluted earnings (loss) per common share $ 0.02 $ ( 0.10 ) Diluted earnings (loss) per common share for the three months ended March 31, 2026 and 2025 excludes the effects of 3,227,500 and 7,236,180 common share equivalents respectively, since such inclusion would be anti-dilutive. The common share equivalents consist of shares of Common Stock issuable upon the exercise or conversion of outstanding Series A preferred stock, warrants, and restricted shares with a service condition. 17 (11) EQUITY Preferred Stock and Warrants On January 23, 2024, the Company issued 2,000,000 shares of Series A Convertible Preferred Stock (the “Series A Preferred Stock”) and warrants to purchase up to 2,800,000 shares of Common Stock at an exercise price of $ 1.00 per share, subject to adjustment (the “Warrants”). The Company evaluated the Series A Preferred Stock and Warrants for liability or equity classification in accordance with the provisions of ASC 480, Distinguishing Liabilities from Equity , and determined that equity treatment was appropriate because neither the Series A Preferred Stock nor the Warrants met the definition of liability instruments. The Warrants are classified as a component of permanent equity because they are freestanding financial instruments that are legally detachable and separately exercisable from the shares of Common Stock with which they were issued, are immediately exercisable, do not embody an obligation for the Company to repurchase its shares, and permit the holder to receive a fixed number of shares of Common Stock upon exercise. On February 18, 2025, the Company entered into a Securities Purchase Agreement (the “February 18, 2025 SPA”) with Lazar, and Cao Yu, Hu Bin, and Youxin Consulting Limited (collectively, the “Purchasers”), which was subsequently amended on May 9, 2025. Pursuant to the February 18, 2025 SPA and its amendment, Lazar, a former director and officer of the Company, sold to the Purchasers (i) 2,219,447 shares of Series A Preferred Stock, (ii) a warrant to purchase up to 2,800,000 shares of Common Stock at an exercise price of $1.00 per share, subject to adjustment (the “Warrant”), and (iii) certain receivables owed by the Company to Lazar associated with the transaction (the “Lazar Receivables”). On April 10, 2025, Lazar transferred an additional 31,258 shares of Series A Preferred Stock to the Purchasers (together with the previously transferred shares and the Warrant, the “Securities”). The aggregate purchase price for the Securities and the Lazar Receivables was $500,000, of which $300,000 was directed by Lazar to be paid to the Company in exchange for a convertible note. The Purchasers also paid a $3.4 million earn-out payment to Lazar for his efforts related to the Company’s successful relisting on Nasdaq as of June 30, 2025. As of June 30, 2025, the Lazar Receivables were forgiven for the benefit of the Company, and the Warrant was amended and restated to eliminate the beneficial ownership limitations previously contained therein. No dividends have been declared or paid on the Common Stock or the Series A Preferred Stock as of March 31, 2026 and December 31, 2025. As of March 31, 2026 and December 31, 2025, the Company had 2,305,357 shares of Series A Preferred Stock issued and outstanding. Each share of Series A Preferred Stock is convertible, at the option of the holder, into 1.4 shares of Common Stock, votes on an as-if-converted basis, and has full ratchet protection in any subsequent offerings. The Warrants remained outstanding as of March 31, 2026. Securities Purchase Agreements On May 9, 2025, the Company entered into, and simultaneously closed the transactions under, Securities Purchase Agreements with Cao Yu and Hu Bin, pursuant to which the Company sold an aggregate of 2,439,025 shares of Common Stock— 1,585,366 shares to Cao Yu for a purchase price of $ 2,600,000 and 853,659 shares to Hu Bin for a purchase price of $ 1,400,000 . On January 30, 2026, the Company entered into a securities purchase agreement (the “2026 Purchase Agreement”) with certain purchasers named therein (the “Purchasers”), pursuant to which the Company agreed to sell and issue to the Purchasers, at the closing of the private placement (the “Closing”) in March 2026, an aggregate of 394,476 shares of Common Stock (the “Shares”), at an offering price of $ 5.07 per Share. The Closing occurred on March 31, 2026. The Company received total gross proceeds of $ 1,999,993 from the Purchasers. As of March 31, 2026, $3,945 was recorded as Common Stock and $1,996,048 was recorded as additional paid-in capital (“APIC”), net of $53,823 of legal fees related to the offering, which were charged to APIC. 18 Helena Purchase Agreement On May 9, 2025, the Company entered into a Purchase Agreement (the “Helena Purchase Agreement”) with Helena Global Investment Opportunities I Ltd. (“Helena”) whereby the Company shall have the right to issue and sell to Helena, from time to time, and Helena shall purchase from the Company, up to $15,000,000 of Common Stock, during the period commencing on May 9, 2025 and ending on the first day of the month immediately following the 36-month anniversary of May 9, 2025. The closing of each Advance (as defined in the Helena Purchase Agreement) and each sale and purchase of Common Stock related to each Advance shall take place on the applicable Settlement Date (as defined in the Helena Purchase Agreement), at a Purchase Price (as defined in the Helena Purchase Agreement) based on 95% of the lowest VWAP for the Common Stock, in respect of any Advance, during the three (3) trading days commencing on the date of Helena’s receipt of the shares of Common Stock relating to such Advance. In consideration for Helena’s execution and delivery of the Helena Purchase Agreement, the Company issued to Helena, as a commitment fee, shares of Common Stock (the “Commitment Fee Shares”), having an aggregate value of $150,000, of which (i) 71,572 shares of Common Stock were issued on May 14, 2025, and (ii) 71,572 shares of Common Stock were issued on August 11, 2025. The Commitment Fee Shares were fully earned as of the execution date of the Helena Purchase Agreement, and the issuance of the Commitment Fee Shares was not contingent upon any other event or condition. The number of the Commitment Fee Shares issued in each tranche was determined by dividing $75,000 by the lowest Volume Weighted Average Price (VWAP) of the Common Stock during the five trading days immediately preceding the agreement date. July 2025 Warrant On July 2, 2025, the Company issued a warrant to purchase 404,002 shares of Common Stock with an exercise price of $ 0.01 per share, subject to stockholder approval (the “July 2025 Warrant”), to Lazar. This warrant was issued as compensation for services provided by Lazar. In accordance with the accounting requirements of ASC 718, “Compensation—Stock Compensation,” and ASC 505-50, “Equity—Equity-Based Payments to Non-Employees,” the Company measured this equity instrument at fair value and recognized the compensation cost immediately on the grant date. Using the Black-Scholes option pricing model, with key inputs including a fair value of the underlying Common Stock of $ 2.67 , an exercise price of $ 0.01 per share, an expected term of 0.405 years, a risk-free interest rate of 4.33 % , expected volatility of 90 % , and a dividend yield of 0 % , the fair value of this warrant was determined to be $ 1,074,715 .55 as of July 2, 2025. On the grant date, the Company recognized the compensation expense with a corresponding credit to APIC. On November 12, 2025, Lazar exercised the warrant through a cashless exercise mechanism. Pursuant to the cashless exercise, 402,347 shares of Common Stock were issued. The warrant was fully settled upon this exercise and no longer remains outstanding. Stock-Based Compensation On April 29, 2025, the Company entered into Director Agreements with two independent directors, pursuant to which each director is entitled to receive 100,000 shares of Common Stock, provided they remain a director for one year from the effective date of the Director Agreements. The grant date for these equity awards was April 29, 2025, with a one-year service period ending on April 29, 2026. Compensation expense is recognized on a straight-line basis over the service period. For the three months ended March 31, 2026, the Company recognized $46,000 of stock-based compensation expense related to these awards, representing the portion of the service period completed during the three months ended March 31, 2026. This amount is recorded as an increase to additional paid-in capital and is included in general and administrative expenses in the consolidated statements of operations. 19 (12) SUBSEQUENT EVENTS The Company has evaluated subsequent events from March 31, 2026 through April 30, 2026, the date that the unaudited condensed consolidated financial statements were issued, and has determined that there are no additional events requiring recognition or disclosure in the financial statements except for the events as disclosed below: On April 20, 2026, we relocated our principal executive offices from Hong Kong to 3-33, 2-chome Utajima, Nishiyodogawa District, Osaka, Japan. 20