KIDZ AI Inc. 10-K

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview We are an online enrichment class platform that offers over 40 courses taught by experienced, independent educators. Our program caters to children aged 4 to 17, providing personalized attention and a supportive learning environment. Unlike traditional classes, we give students the unique opportunity to explore their interest in-depth via interactive, live streaming courses with flexible time slots. Our total revenue decreased by $309,183, or 8%, from $3,675,604 for the year ended December 31, 2024, to $3,366,421 for the year ended December 31, 2025. Our gross profit decreased by $141,420, from $2,059,176 for the year ended December 31, 2024, to $1,917,756 for the year ended December 31, 2025. Despite the decrease in sales, our gross profit margin increased slightly from 56% in 2024 to 57% in 2025, as we managed to cut down cost during 2025. Business Model We understand that it is easier to learn when students are interested, so we highlight variety in our business model. Our platform offers a wide breadth of affordable enrichment programs including language, science, technology, engineering, arts, mathematics, music, and many more. Since our platform handles enrollments, record keeping, and many other tasks that usually take up educators’ time, our educator can focus on sharing knowledge about topics they love with our students. We analyze data gathered on our platform to better determine our students’ most relevant needs, helping us match them with relevant courses and learning paths, thereby driving higher satisfaction. Once a learner enrolls in a course, we strive to provide an effective learning experience through tutoring, assessments, Q&As, and interactive exercises. We provide time-based subscriptions and credit-based subscriptions to our online courses. For time-based subscriptions, we provide students with unlimited access to our courses for a specified period of time. For credit-based subscriptions, we offer our students the flexibility to take courses at any time up to the limit of their prepaid balance. Key Factors Affecting Our Performance Our results of operations and financial condition have been, and will continue to be, affected by a number of factors that present significant opportunities for us but also pose risks and challenges, including those discussed below and elsewhere in this Annual Report. Ability to attract new registered users and paid subscribers Our business model is dependent upon our ability to grow and maintain a large user base, and it also requires that we grow and keep registered users and paid subscribers. As of December 31, 2025 and 2024, we have 72,850 and 61,387 registered users, respectively. "Registered users" are individuals who have signed up and created an account on our platform. This group includes all users who access our services, regardless of whether they have made a financial commitment to our offerings. Registered users may take advantage of free trials, access limited content, or use basic features available at no cost. While registered users do not directly contribute to subscription revenue, they play a crucial role in the overall revenue strategy by expanding the potential market. They provide a pool of potential customers who can be converted into paying customers through targeted marketing and engagement strategies. Additionally, registered users might generate revenue through advertisements, in-app purchases, or by upgrading to paid plans. 50 Table of Contents "Paid subscribers," on the other hand, include those registered users who have opted for a subscription plan and have made a financial commitment to access our premium content and features. Paid subscribers also encompass customers who purchase lesson credit packages, allowing them to access specific lessons or courses without committing to a recurring subscription. These subscribers typically pay either a recurring fee, which can be monthly, quarterly, or annually, depending on the subscription model, or a one-time fee for lesson credit packages. Paid subscribers are the primary source of revenue for the Company. The consistent and recurring nature of subscription payments ensures a steady revenue stream, while lesson credit packages offer flexibility and contribute additional non-recurring revenue. This combination supports the Company's operational costs, development, and expansion plans. Ability to retain existing paid subscribers and customer relationships Our ability to increase our revenues and profitability will depend on the ability to retain our existing customers as well as to convert registered users to paid subscribers. Ability to attract and retain high quality independent teacher contractors We believe that students are attracted to us largely because of the high quality and wide selection of enrichment and academic lessons offered by our high quality independent teacher contractors, and that continuing to attract and retain many high quality educator partners will be an important factor in attracting registered users and paid subscribers and increasing our revenue over time. We believe that our reach, reputation, and compensation packages provide an attractive value proposition for educators to partner with us to develop and distribute enrichment content. To be the platform of choice for educator partners, we continue to invest in increasing the size and engagement of our user base, improving recommendation and personalization features, and developing marketing capabilities that drive higher conversions. As of December 31, 2025 and 2024, we have 1,200 and 936 educator partners working with us, respectively. Operating Efficiency Our ability to maintain and increase profitability also depends on our ability to effectively control our costs and expenses. The significant component of our cost of revenues is the compensation expense to our educators. We pay our educators based on the number of hours they teach. In addition, we initiated time limit on certain courses, which encouraged students to pick courses in a shorter period of time, which also lead to an increase in the number of students in each class. However, to ensure quality of our online courses, we generally maintain a student to teacher ratio within 6:1. Key Components of Results of Operations Revenues We have three predominant sources of revenue: (i) time-based subscriptions, (ii) credit-based subscriptions to our online courses, and (iii) marketing consulting services. Customers are required to pay in advance to enroll for courses. Cost of revenues Cost of revenue consists of streaming services, third-party payment processing fees, and compensation for teachers and certain employees. Selling expenses Selling expenses consist primarily of advertising costs on social media platforms such as Google and WeChat. 51 Table of Contents General and administrative expenses General and administrative expenses consist primarily of (i) compensation for our management and administrative personnel, (ii) expenses in connection with operation supporting functions such as legal, accounting, consulting, and other professional service fees, and (iii) office rental, depreciation, and other administrative related expenses. Research and Development Expenses Our research and development expenses include compensation-related expenses to the outsourced subcontractors for maintenance of our online learning platform. Results of Operations For the years ended December 31, 2025 and 2024 The following table summarizes our results of operations for the years presented. The results below are not necessarily indicative of results to be expected for future periods. For the Year Ended December 31, 2025 2024 Variance Amount Variance % Revenues: Service revenues $ 3,366,421 $ 3,375,604 $ (9,183 ) 0 % Consulting revenues (related party) - 300,000 (300,000 ) -100 % Total revenues 3,366,421 3,675,604 (309,183 ) -8 % Cost of revenues: Cost of revenues 1,448,665 1,616,428 (167,763 ) -10 % Total cost of revenues 1,448,665 1,616,428 (167,763 ) -10 % Gross profit 1,917,756 2,059,176 (141,420 ) -7 % Operating expenses: Selling and marketing 508,703 657,003 (148,300 ) -23 % General and administrative 4,946,263 2,196,747 2,749,516 125 % Research and development 54,462 39,254 15,208 39 % Total operating expenses 5,509,428 2,893,004 2,616,424 90 % (Loss) from operations (3,591,672 ) (833,828 ) (2,757,844 ) 331 % Other income (expense) Change in fair value of warrants 546,824 - 546,824 100 % Change in fair value of crypto assets (1,565,172 ) - (1,565,172 ) 100 % Change in fair value of convertible debt (807,703 ) - (807,703 ) 100 % Financing cost (1,460,704 ) - (1,460,704 ) 100 % Staking rewards (473,500 ) - (473,500 ) 100 % Interest and other expense 15,729 (9,220 ) 24,949 -271 % Total other income (expense) (3,453,193 ) (9,220 ) (3,443,973 ) 37353 % (Loss) before provision for income taxes (7,044,865 ) (843,048 ) (6,201,817 ) 736 % Provision for income taxes - - - - Net (loss) $ (7,044,865 ) $ (843,048 ) $ (6,201,817 ) 736 % Revenue The summary information by revenue stream are as follows: For the Year Ended December 31, 2025 2024 Variance Amount Variance % Revenues: Service revenues $ 3,366,421 $ 3,375,604 $ (9,183 ) 0 % Consulting revenues (related party) - 300,000 (300,000 ) -100 % Total revenues $ 3,366,421 $ 3,675,604 $ (309,183 ) -8 % 52 Table of Contents Our total revenue decreased by $309,183, or 8%, from $3,675,604 for the year ended December 31, 2024, to $3,366,421 for the year ended December 31, 2025. Service revenues decreased slightly by $9,183 from $3,375,604 for the year ended December 31, 2024, to $3,366,421 for the year ended December 31, 2025. In the fourth quarter of 2023, we added a new revenue stream by providing marketing consulting services to Genius Kid Class LLC, one of our related parties. We completed our consulting service obligation to Genius Kid Class LLC by the end of 2024 and generated $300,000 revenue in 2024However, we are uncertain about future growth of consulting revenue as we have not secured any new consulting contracts yet as of December 31, 2025. As a result, no consulting revenue was generated in 2025. The lack of consulting revenue was the primary contributor to the decrease in revenue in 2025 compared to 2024. Costs of Revenue For the Year Ended December 31, 2025 2024 Variance Amount Variance % Compensation $ 1,322,634 $ 1,443,660 (121,026 ) -8 % Payment Processing Fee 54,381 86,903 (32,522 ) -37 % Streaming Services 71,650 85,865 (14,215 ) -17 % Total $ 1,448,665 $ 1,616,428 $ (167,762) -10 % Cost of revenues decreased by $167,762, or 10%, from $1,616,428 for the year ended December 31, 2024, to $1,448,665 for the year ended December 31, 2025. Compensation expenses for independent educators and employees directly involved in providing services decreased by $121,026, or 8%, from $1,443,660 for the year ended December 31, 2024, to $1,322,634 for the year ended December 31, 2025. The decrease in cost of revenues was primarily attributable to improved scheduling efficiency of teaching staff and optimizing of class size. The Company enhanced its class scheduling processes to better align educator partners availability with student demand, which increased class utilization rates and reduced idle time, thereby lowering overall compensation and streaming costs without adversely affecting instructional capacity and quality. Gross profit margin Our gross profit and gross profit margin from the two revenue streams are summarized as follows: For the Year Ended December 31, 2025 2024 Variance Service revenues Gross profit 1,917,756 1,818,773 98,983 Gross margin 57 % 54 % 3 % Consulting revenues (related party) Gross profit - 240,404 (240,404 ) Gross margin - 80 % - Total Gross profit 1,917,756 2,059,176 (141,420 ) Gross margin 57 % 56 % 1 % 53 Table of Contents The total gross profit margin increased from 56% in 2024 to 57% in 2025, as a result of improved scheduling efficiency of teaching staff to cut down cost during 2025, partially offset by lacking revenue from consulting revenue, which generally has a much higher margin. Operating expenses During the year ended December 31, 2024, we incurred total operating expenses of $5,509,428, an increase of $2,616,424, or 90%, as compared to total operating expenses of $2,893,004 during the year ended December 31, 2024. General and administrative expenses increased by $2,749,516, or 125%, from $2,196,747 for the year ended December 31, 2024, to $4,946,263 for the year ended December 31, 2025. Our general and administrative expenses include compensation related to the administrative personnel, amortization and depreciation expenses, rent, and other general expenses. Other general expenses increased by $1,455,396 from $389,080 for the year ended December 31, 2024, to $1,844,476 for the year ended December 31, 2025. The increase was primarily attributable to higher professional consulting fees, regulatory registration expenses, insurance as we completed a merger with BFAC and became a public listed company. Employee compensation expenses increased by $480,336 from $1,384,246 for the year ended December 31, 2024, to $1,864,582 for the year ended December 31, 2025. The increase is primarily driven by additional hiring during 2025 to support our growth. In addition, there was an upward adjustment to executive compensation, further contributing to the overall compensation growth. In addition, employee stock compensation was $485,119 for the year ended December 31, 2025. There was no employee stock compensation in 2024. Amortization and depreciation expenses increased by $298,889 from $54,823 for the year ended December 31, 2024, to $353,712 for the year ended December 31, 2025. The increase was primarily attributable to the amortization of the intangible assets acquired in 2025. Other income (expense) Other income (expense)for the year ended December 31, 2025, was $3,453,193as compared to $9,220 for the year ended December 31, 2024. The increase was primarily attributable to a decrease of $1,565,172 in fair value of crypto assets, an increase of $807,703 in fair value of convertible debt, a recording of $1,460,704 impairment loss that we recognized on intangible assets, and $473,500 financing cost incurred during the year ended December 31, 2025. Provision for income taxes The Company had no income tax provision for the years ended December 31, 2025 and 2024. We have made a full allowance on the deferred tax assets as we have determined that it is not more likely than not that the assets will be realized. 54 Table of Contents Net Loss As a result of the combination of factors discussed above, our net loss increased from $843,048 for the year ended December 31, 2024 to $7,044,865 for the year ended December 31, 2025. Liquidity and Capital Resources As of December 31, 2025, we had cash and cash equivalents of $2,751,594. Cash consists primarily of cash on hand and bank deposits. The Company maintains cash deposits with financial institutions that may exceed federally insured limits at times. The following table shows the breakout between cash on hand and bank deposits: December 31, 2025 December 31, 2024 Cash on hand $ 3,144 $ 3,144 Bank deposits 2,748,450 47,538 Total cash shown in the Statement of Cash Flows $ 2,751,594 $ 50,682 The accompanying consolidated financial statements have been prepared applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. As of December 31, 2025, the Company had cash of $2,751,594, current liabilities of $2,312,556, a working capital of $494,660 and a stockholders’ equity of $3,777,012, and a net loss of $7,044,865 for the year. These factors among others, raise substantial doubt about the ability of the Company to continue as a going concern for the twelve months following the issuance of the financial statements included elsewhere in this Annual Report. The Company completed business combination with BFAC on April 3, 2025 and received $1,075,936 from BFAC’s trust account. Additionally, on May 30, 2025, the Company entered into a Securities Purchase Agreement with an investor and the Company may sell to the investor up to an aggregate of $500 million in newly issued senior secured convertible notes (the “Notes”). On June 6, 2025, the Company consummated the initial closing of $11 million of Notes. Management of the Company has evaluated the mitigation plans and determined that the current working capital, cash position, and Notes available for future issuance are sufficient to support its continuous operations and to meet its payment obligations when liabilities fall due within the next twelve months from the date of issuance of these combined and consolidated financial statements. Accordingly, the Company’s combined and consolidated financial statements are prepared on going concern basis, which assumes that the Company will continue in operation for the foreseeable future and, accordingly, will be able to realize its assets and discharge its liabilities in the normal course of operations as they come due. These financial statements do not include any adjustment relating to the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. We may, however, need additional cash resources in the future if we experience changes in business conditions or other developments, or if we find and wish to pursue opportunities for investments, acquisitions, capital expenditures or similar actions. If we determine that our cash requirements exceed the amount of cash and cash equivalents we have on hand at the time, we may seek to issue additional equity or debt securities. The issuance and sale of additional equity would result in further dilution to our shareholders. The incurrence of indebtedness would result in increased fixed obligations and could result in operating covenants that would restrict our operations. We cannot assure you that financing will be available in amounts or on terms acceptable to us, if at all. 55 Table of Contents For the Years Ended December 31, 2025 2024 Net cash (used in) operating activities $ (3,826,755 ) $ (781,265 ) Net cash (used in) investing activities (2,325,000 ) (185,705 ) Net cash provided by financing activities 8,852,667 230,000 Change in cash and cash equivalents 2,700,912 (736,970 ) Cash and cash equivalents, beginning of year 50,682 787,652 Cash and cash equivalents, end of year $ 2,751,594 $ 50,682 Operating Activities Net cash used in operating activities for the year ended December 31, 2025, was primarily attributable to net loss of $7,044,865, decrease in operating lease liabilities of $314,686 as we made payment under the lease contract, decrease in deferred revenues of $847,369, and change in fair value of warrants of $546,824. Cash outflow was partially offset by change in fair value of convertible debt of $807,703, change in fair value of crypto assets of $1,565,172, non-cash impairment loss of $1,460,704, non-cash amortization of operating lease right-of-use assets $305,476, employee stock compensation of $402,710, depreciation and amortization of $352,678, and an increase in accrued liabilities and other payables of $379,764. Net cash used in operating activities for the year ended December 31, 2024, was primarily attributable to net loss of $843,048 and decrease in operating lease liabilities of $295,475 as we made payment under the lease contract and decrease in due to related parties of $237,086 as we paid off the related party loans. Cash outflow was partially offset by the non-cash amortization of operating lease right-of-use assets $293,526, depreciation and amortization expenses of $54,823, non-cash stock compensation expenses of $25,120, and increase in deferred revenues of $157,845 as we collected in advance from online class subscription. Investing Activities Net cash used in investing activities was $2,325,000 for the year ended December 31, 2025. The increase was primarily due to our purchases of crypto assets and intangible assets. Net cash used in investing activities was $185,705 for the year ended December 31, 2024. The cash outflow was primarily due to our purchases of property and equipment in the amount of $185,705 during 2024. 56 Table of Contents Financing Activities Net cash provided by financing activities was $8,852,667 for the year ended December 31, 2025. The increase was mainly due to the issuance of promissory notes of $3,089,400, capital contribution from private placement of $4,700,000, proceeds from promissory notes related party of $318,000, and proceeds from the reverse recapitalization of $1,077,752. Cash inflow was partially offset by a repayment of promissory notes to related party of $332,485. Net cash provided by financing activities was $230,000 for the year ended December 31, 2024. The increase in cash flow was mainly due to the issuance of convertible loan in the amount of $100,000 in 2024 and a loan received from a related party in the amount of $130,000. Critical Accounting Policies and Estimates Accounting Principles —The consolidated financial statements and accompanying notes are prepared in accordance with generally accepted accounting principles in the United States of America (GAAP). Principles of consolidation— The consolidated financial statements include the financial statements of the Company and its subsidiary. All significant intercompany transactions and balances between the Company and its subsidiary are eliminated upon consolidation. Use of Estimates — The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Significant estimates and assumptions reflected in the consolidated financial statements include, but are not limited to, useful lives of property and equipment, valuation of deferred tax assets and liabilities, operating lease right-of-use assets and liabilities and deferred revenue. Actual results may differ materially from such estimates. Management believes that the estimates, and judgments upon which they rely, are reasonable based upon information available to them at the time that these estimates and judgments are made. To the extent that there are material differences between these estimates and actual results, the Company’s consolidated financial statements will be affected. Revenue Recognition— The Company has Three predominant sources of revenue: time-based subscriptions, credit-based subscriptions to our online courses, and marketing consulting services. Subscription Revenue Customers are required to pay in advance to enroll for course. For time-based subscriptions, we are obligated to provide students with unlimited access to our course for a specified term. For credit-based subscriptions, we offer our students the flexibility to take courses at any time up to the limit of their prepaid balance. Each contract of the online education service is accounted for as single performance obligation which is satisfied ratably over the service period. We charge fixed fees to the services contracts. The proceeds collected are initially recorded as deferred revenue. For credit-based subscriptions, revenues are recognized proportionately as the courses are delivered. For time-based subscriptions, revenues are recognized on a straight-line basis over the subscription period from the date in which the students activate the courses to the date of expiration. Refunds are provided to the students who decide to withdraw from the subscribed courses within the course offer period and a proportional refund is based on the percentage of untaken courses to the total courses purchased. Historically, the Company has not experienced material refunds. Consulting Revenue The Company also generates revenue from consulting services. The Company’s consulting program is designed to teach startup founders within the education sector how to market their product, refine their course content, infrastructure, and business models, achieve market fit and operating efficiency, and scale the startup into a high growth education business. The Company’s performance obligation is to provide consulting services to startup founders for a specific term. Customers are required to prepay full consulting service charge, which is fixed and determinable, at contract inception to secure program spot, and revenue is recognized overtime on a straight-line basis through the service term. 57 Table of Contents Principal Agent Considerations— The Company makes its application available to be downloaded through third-party digital distribution service providers. Users who intend to enroll our courses are directed to third-party payment platforms before completing subscription with us. The Company evaluates the purchases via third-party payment processors to determine whether its revenues should be reported gross or net of fees retained by the payment processor. The Company is the principal in the transaction with the end user as a result of controlling, hosting, and integrating the delivery of the virtual items to the end user. The Company records revenue on a gross basis as a principal and records fees paid to third-party payment platforms as cost of revenues. Deferred Revenue— Deferred revenue mostly consists of payments we receive in advance of revenue recognition. Revenue is recognized over the life of the subscription, or as the delivery of the pre-purchased class sessions. The Company classifies deferred revenue as a short-term liability on the balance sheets as the longest subscription plan is for twelve months and the remaining session are expected to be delivered within twelve months or less. Cost of Revenue— Cost of revenue predominantly consists of streaming services, third-party payment processing fees, and wages for teachers and certain employees engaged in producing the revenue. Property and Equipment— Property and equipment primarily includes computers and furniture are stated at cost, less accumulated depreciation. Depreciation is computed on the straight-line method over 5 years. Leasehold improvements are amortized over the lesser of the life of the lease or the estimated useful life of the leasehold improvements. Costs related to maintenance and repairs that do not extend the assets’ useful life are expensed as incurred. Investment accounts— Investment accounts consist of cash and crypto assets held for investment purposes. Cash is carried at cost, which approximates fair value due to its short-term nature. The Company has elected to use the weighted average cost (WAC) method to determine the cost basis for its initial recognition of crypto asset holdings. Under this method, the cost of crypto assets sold or exchanged is calculated using the weighted average cost per unit at the time of the transaction. This method is applied consistently across all crypto asset holdings. The Company measures the fair value of its crypto assets subsequently, with gains and losses from changes in the fair value of such crypto assets recognized in net income each reporting period. The Company establishes a deferred tax liability if the market value of crypto assets at the reporting date is greater than the average cost basis of the Company’s crypto holdings at such reporting date, and any subsequent increases or decreases in the market value of crypto assets increases or decreases the deferred tax liability. In determining the gain (loss) to be recognized upon sale, the Company calculates the difference between the sales price and carrying value of the crypto assets with WAC method. Intangible assets— Intangible assets acquired by the Company are stated at cost less accumulated amortization (where the estimated useful life is finite) and impairment losses. Amortization of intangible assets with finite useful lives is charged to profit or loss on a straight-line basis over the assets’ estimated useful life, which is the period over which an asset is expected to be available for use. The estimates and associated assumptions of useful life determined by the Company are based on technical or commercial obsolescence, legal or contractual limits on the use of the asset, and other relevant factors. Both the period and method of amortization are reviewed annually. Intangible assets are not amortized while their useful lives are assessed to be indefinite. Any conclusion that the useful life of an intangible asset is indefinite is reviewed annually to determine whether events and circumstances continue to support the indefinite useful life assessment for that asset. If they do not, the change in the useful life assessment from indefinite to finite is accounted for prospectively from the date of change and in accordance with the policy for amortization of intangible assets with finite lives as set out above. 58 Table of Contents Income Taxes —The Company provides for income taxes in accordance with the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the carrying amounts of existing assets and liabilities for financial reporting and for income tax reporting. The deferred tax asset or liability represents the future tax return consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. A valuation allowance is established for any deferred tax asset for which it is determined that it is more likely than not that some or all of the deferred tax assets will not be realized. The Company utilizes a two-step approach to recognizing and measuring uncertain tax positions accounted for in accordance with the asset and liability method. The first step is to evaluate the tax position for recognition by determining whether evidence indicates that it is more likely than not that a position will be sustained if examined by a taxing authority. The second step is to measure the tax benefit as the largest amount that is 50% likely of being realized upon settlement with a taxing authority. There were no amounts recorded at December 31, 2025 and 2024 related to uncertain tax positions. Fair Value of Financial Instruments —The Company accounts for certain assets and liabilities at fair value in accordance with the accounting guidance applicable to fair value measurements and disclosures. The carrying values of cash, cash equivalents, accounts payable, deferred revenues, interest payable, loan payable, due to related parties, operating lease liabilities and accrued liabilities and other payables are deemed to be reasonable estimates of their fair values because of their short-term nature. Research and Development Costs — Research and development expenses include compensation-related expenses to the outsourced subcontractors for maintenance of our online learning platform. Recent Issued Accounting Pronouncements For a detailed discussion on recent accounting pronouncements, see Note 2 to the consolidated financial statements included elsewhere in this Annual Report. Contingencies— The Company records accruals for contingencies and legal proceedings expected to be incurred in connection with a loss contingency when it is probable that a liability has been incurred and the amount can be reasonably estimated. If a loss contingency is not probable, but is reasonably possible, or is probable but cannot be estimated, the nature of the contingent liability, together with an estimate of the range of possible loss, would be disclosed. Off-Balance Sheet Arrangements The Company has no off-balance sheet arrangements including arrangements that would affect the Company’s liquidity, capital resources, market risk support and credit risk support or other benefits. 59 Table of Contents ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not required for smaller reporting companies. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA This information appears following the signature page of this Annual Report and is included herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.