OFA Group 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) covers information pertaining to the Company for the three months ended June 30, 2026 and 2025 and should be read in conjunction with the unaudited condensed consolidated financial statements and related notes of the Company as of June 30, 2026 and March 31, 2026 and for the three months ended June 30, 2026 and 2025. Except as otherwise noted, the financial information contained in this MD&A and in the financial statements has been prepared in accordance with accounting principles generally accepted in the United States of America. All amounts are expressed in U.S. dollars unless otherwise noted. This discussion contains forward-looking statements that involve risks and uncertainties, including those discussed below and elsewhere in this quarterly report, particularly under “Risk Factors.” Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors. Critical Accounting Policies and Critical Accounting Judgments and Estimates The Company prepared the condensed consolidated financial statements in accordance with U.S. GAAP. These accounting principles require the Company to make judgments, estimates and assumptions on the reported amounts of assets and liabilities at the end of each period, and the reported amounts of revenues and expenses during each period. The Company continually evaluates these judgments and estimates based on its own historical experience, knowledge and assessment of current business and other conditions, its expectations regarding the future based on available information, which together form its basis for making judgments about matters that are not readily apparent from other sources. Since the use of estimates is an integral component of the financial reporting process, our actual results could differ from those estimates. Some of the accounting policies require a higher degree of judgment than others in their application. Critical accounting policies When reading our condensed consolidated financial statements, you should consider our selection of critical accounting policies, including revenue recognition, contract assets, contract liabilities, mezzanine equity and income taxes, of which the details are set out in our condensed consolidated financial statements. Recently Issued Accounting Pronouncements See the discussion of recently issued accounting pronouncements contained in Note 2 to the unaudited condensed consolidated financial statements for the three months ended June 30, 2026 and 2025. Critical accounting estimates You should also consider the judgment and other uncertainties affecting the application of such policies and the sensitivity of reported results to changes in conditions and assumptions. The Company believes the following accounting policies involve the most significant judgments and estimates used in the preparation of our consolidated financial statements. Revenue Recognition The Company adopted the revenue standard Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers. As a professional interior design and fit-out service provider, the Company recognizes revenue based on the effort or inputs to the satisfaction of a performance obligation over time as work progresses because of the continuous transfer of control to the customer and the right to bill the customer as costs are incurred. 3 The Company uses the ratio of actual costs incurred to total estimated costs since costs incurred (an input method) represent a reasonable measure of progress towards the satisfaction of a performance in order to estimate the portion of revenue earned. This method faithfully depicts the transfer of value to the customer when the Company is satisfying a performance obligation that entails a number of interrelated tasks or activities for a combined output that requires the Company to coordinate the work of employees and subcontractors. Contract costs typically include direct labor, subcontract and consultant costs, materials and indirect costs related to contract performance. Changes in estimated costs to complete these obligations result in adjustments to revenue on a cumulative catch-up basis, which causes the effect of revised estimates to be recognized in the current period. Changes in estimates can routinely occur over the contract term for a variety of reasons including, changes in scope, unanticipated costs, delays or favorable or unfavorable progress than original expectations. When the outcome of the contract cannot be reasonably measured, revenue is recognized only to the extent of contract costs incurred that are expected to be recovered. In situations where the estimated costs to perform exceeds the consideration to be received, the Company accrues the entire estimated loss during the period the loss becomes known. Our operating subsidiary’s contracts may contain variable consideration in the form of unpriced or pending change orders or claims that either increase or decrease the contract price. Variable consideration is generally estimated using the expected value method but may from time to time be estimated using the most likely amount method depending on the circumstance. Estimated amounts are included in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur or when the uncertainty associated with the variable consideration is resolved. Estimates of variable consideration are based upon historical experience and known trends. Service Arrangement Settled in Digital Assets During the year ended March 31, 2026, the Company, acting through its Hearth RWA tokenization platform, entered into the Tokenization Agreement, dated March 31, 2026, with the MD Queens to provide blockchain-based tokenization infrastructure and related technology services in connection with MD Queens’ mixed-use real estate development project located in Long Island City, New York. Under the Tokenization Agreement, the Company is entitled to a non-refundable Platform Technology Fee of $15,000,000, payable in two equal installments and settleable in U.S. dollars or cryptocurrency. On May 8, 2026, the Company entered into the Vero 60 Agreement with Vero 60 to provide blockchain-based tokenization technology infrastructure services for the Vero 60 Project. This agreement provides for a Platform Technology Fee of $7.5 million, payable in two installments of $3.75 million each upon satisfaction of the applicable contractual milestones. The consideration received under these arrangements constitutes noncash consideration under ASC 606. Noncash consideration is measured at the fair value of the consideration received at contract inception. MD Queens elected to settle the first installment of the Platform Technology Fee under the Tokenization Agreement through the transfer of 12,500,000 PPDF tokens on March 31, 2026. On May 13, 2026, the Company received an additional 6,250,000 PPDF tokens in connection with the first $3,750,000 installment under the Vero 60 Agreement. The PPDF tokens were issued by the customer and were established on March 25, 2026, shortly before the initial transfer to the Company. As of their respective dates of receipt, the PPDF tokens did not have sufficient established trading history, were not traded in an active market and were subject to significant liquidity restrictions. Based on these factors, the Company determined that the fair value of the noncash consideration received under both agreements was not reliably measurable as of June 30, 2026. Because the services under the Tokenization Agreement had not been performed as of June 30, 2026, and the Company had performed only internal preparatory activities and had not made any substantive deliverables to the client under the Vero 60 Agreement, the Company did not recognize any revenue with respect to either service arrangement for the period. Consistent with its policy for consideration received in advance of performance, the arrangements were treated as contract liabilities; however, because the fair value of the consideration received could not be reliably measured, the contract liabilities and the related digital assets were recorded at zero carrying amounts as of June 30, 2026. Accordingly, no contract liabilities were recognized based on the stated values of the installments received, which were $7,500,000 under the Tokenization Agreement and $3,750,000 under the Vero 60 Agreement. 4 The Company will reassess these arrangements in subsequent periods. Revenue, and any associated remeasurement of the consideration received, will be recognized when (i) the related performance obligation are satisfied and (ii) the fair value of the consideration received becomes reliably measurable, such as upon the development of an active trading market for the PPDF or upon disposition. Any subsequent recognition could differ materially from the stated contract value, and the ultimate amount realized, if any, is subject to significant uncertainty. There is no guarantee that any revenues will be generated under the arrangement or the PPDF will increase or maintain its value. Results of Operations Comparison of The Three Months Ended June 30, 2026 and 2025 The following table sets forth key components of the results of operations for the three months ended June 30, 2026 and 2025: For the three months ended June 30, % of 2026 2025 Variance variance Revenue $ 14,879 $ 18,955 $ (4,076 ) (21.50 )% Cost of revenue 3,977 12,697 (8,720 ) (68.68 )% Gross profit 10,902 6,258 4,644 74.21 % Operating expenses Depreciation and amortization 924,586 40 924,546 N/M Selling, general and administrative 243,574 173,031 70,543 40.77 % Professional services 254,035 1,167,823 (913,788 ) (78.25 )% Advertising and marketing 43,135 57,988 (14,853 ) (25.61 )% Salaries and wages 449,795 340,889 108,906 31.95 % Total operating expenses 1,915,125 1,739,771 175,354 10.08 % Loss from operations (1,904,223 ) (1,733,513 ) (170,710 ) 9.85 % Other income (expense) Other income 6,306 9,026 (2,720 ) (30.14 )% Interest expense (3,234 ) (3,542 ) 308 (8.70 )% Interest income 4 252 (248 ) (98.41 )% Total other income (expense), net 3,076 5,736 (2,660 ) (46.37 )% Loss before income tax expense (1,901,147 ) (1,727,777 ) (173,370 ) 10.03 % Income tax expense (4 ) - (4 ) N/M Net loss $ (1,901,151 ) $ (1,727,777 ) $ (173,374 ) 10.03 % Revenue The following table sets forth the breakdown of the revenue by major revenue type for the three months ended June 30, 2026 and 2025, respectively: For the three months ended June 30, 2026 2025 Variance (US$) % of revenue (US$) % of revenue Amount % Revenue Design and fit-out 3,330 22.38 % 11,522 60.79 % (8,192 ) (71.10 )% Others 11,549 77.62 % 7,433 39.21 % 4,116 55.37 % Total revenue 14,879 100.00 % 18,955 100.00 % (4,076 ) (21.50 )% 5 The Company’s revenue decreased by $4,076, or 21.50%, from $18,955 for the three months ended June 30, 2025 to $14,879 for the three months ended June 30, 2026. The decrease was primarily attributable to lower revenue from design and fit-out services, partially offset by increased revenue from application and project management services. Revenue may continue to fluctuate from period to period based on the timing, size and stage of individual projects. The Company’s backlog of ongoing projects provides a certain degree of revenue stability going forward. As of June 30, 2026, the Company had 7 projects in progress with a total contract amount of $615,538 and recognized the related revenue of $45,698 up to the three months ended June 30, 2026. The Company expects that such projects in progress as of June 30, 2026 will be completed and the remaining related revenue of $569,840 will be recognized during the year ending March 31, 2027. While overall market conditions remain uncertain, due to the recovery in client activities, new projects are secured, which may support revenue growth in the coming periods. In addition, preliminary discussions are underway regarding potential new projects and strategic collaborations, which would support revenue growth in the coming periods. The Company is expanding its footprint beyond Hong Kong into the Greater Bay Area and international markets to improve the market diversification. Efforts are also made for vertical integration across the whole project lifecycle. The Company is also focused on innovation, efficiency, and scalability, transitioning from a traditional project-based model to a subscription-based model for AI tools, real estate development and senior care infrastructure. The Company has started to implement AI-driven digital transformation to optimize design workflows and cost structures. OFA QikBIM is an AI-powered Building Information Modeling (“BIM”) platform designed to automate portions of the architectural and engineering design process, including the generation of coordinated architectural drawings, structural plans, BIM models, and related project documentation. The Company, through its Hearth RWA tokenization platform, will provide certain blockchain-based tokenization infrastructure and related technology services in connection with certain projects. Revenue from design and fit-out services decreased by $8,192, or 71.10%, from $11,522 for the three months ended June 30, 2025 to $3,330 for the three months ended June 30, 2026. The decrease primarily reflected the timing and level of design and fit-out project activity during the current period compared with the prior-year period. Other revenue, consisting principally of application and project management services, increased by $4,116, or 55.37%, from $7,433 for the three months ended June 30, 2025 to $11,549 for the three months ended June 30, 2026. The increase partially offset the decline in design and fit-out revenue. The decrease in revenue is primarily attributable to the cyclical nature of the Company’s project-based business model. Revenue from architectural design and fit-out services is inherently lumpy and subject to the timing of contract execution, project commencement, and milestone achievement. The quarter ended June 30, 2026 reflected a transitional period in which several legacy Hong Kong projects reached completion while new engagements — including overseas contracts signed in early 2026 — had not yet progressed to revenue-generating milestones. This pattern is consistent with the Company’s historical experience, where revenue concentration tends to be weighted toward the second half of the fiscal year as new projects ramp up and reach billable stages. Management does not view the quarter-over-quarter decline as indicative of a structural deterioration in demand, but rather a function of project lifecycle timing and the Company’s ongoing geographic diversification efforts. The following table presents revenue by property type for the three months ended June 30, 2026 and 2025, respectively: For the three months ended June 30, 2026 2025 Variance (US$) % of revenue (US$) % of revenue Amount % Revenue Commercial $ 7,091 47.66 % $ 8,122 42.85 % $ (1,031 ) (12.69 )% Industrial 4,457 29.95 % 7,432 39.21 % (2,975 ) (40.03 )% Institutional - - % - - % - - Residential 3,331 22.39 % 3,401 17.94 % (70 ) (2.06 )% Total revenue $ 14,879 100.00 % $ 18,955 100.00 % $ (4,076 ) (21.50 )% 6 Revenue from commercial projects decreased by $1,031, or 12.69%, from $8,122 for the three months ended June 30, 2025 to $7,091 for the three months ended June 30, 2026. The decrease reflected lower commercial project activity during the current period. Revenue from industrial projects decreased by $2,975, or 40.03%, from $7,432 for the three months ended June 30, 2025 to $4,457 for the three months ended June 30, 2026. The decrease primarily reflected the timing and volume of industrial project work performed during the current period. No revenue from institutional projects was recognized during either of the three months ended June 30, 2026 or 2025. Revenue from residential projects decreased by $70, or 2.06%, from $3,401 for the three months ended June 30, 2025 to $3,331 for the three months ended June 30, 2026. Residential project revenue remained relatively stable between the two periods. Cost of revenue The following table sets forth the breakdown of the cost of revenue for the three months ended June 30, 2026 and 2025: For the three months ended June 30, 2026 2025 Variance (US$) % of cost of revenue (US$) % of cost of revenue Amount % Cost of revenue Subcontracting and material costs $ 2,935 73.80 % $ 4,000 31.50 % $ (1,065 ) (26.63 )% Project staff costs 1,042 26.20 % 8,697 68.50 % (7,655 ) (88.02 )% Total cost of revenue $ 3,977 100.00 % $ 12,697 100.00 % $ (8,720 ) (68.68 )% Cost of revenue decreased by $8,720, or 68.68%, from $12,697 for the three months ended June 30, 2025 to $3,977 for the three months ended June 30, 2026. The decrease was greater than the decline in revenue and primarily reflected lower project staff costs and subcontracting and material costs during the current period. The Company generally outsources fit-out work to internally approved subcontractors. Subcontracting costs represent charges and fees paid to subcontractors that provide labor and services for fit-out work, and material costs represent amounts paid to suppliers for fit-out materials. Subcontracting and material costs decreased by $1,065, or 26.63%, from $4,000 for the three months ended June 30, 2025 to $2,935 for the three months ended June 30, 2026, primarily reflecting the lower level and mix of project activity during the current period. Project staff costs represent salaries and mandatory provident fund contributions for project management and design personnel directly involved in providing project services. Project staff costs decreased by $7,655, or 88.02%, from $8,697 for the three months ended June 30, 2025 to $1,042 for the three months ended June 30, 2026, primarily due to lower direct staffing costs allocated to active projects during the current period. 7 Gross profit Gross profit from major revenue type is summarized as follows: For the Three Months Ended June 30, % of 2026 2025 Variance Variance Design and fit-out Gross profit $ 340 $ (425 ) $ 765 (180.00 )% Gross profit margin 10.21 % (3.69 )% 13.90 % Others Gross profit $ 10,562 $ 6,683 $ 3,879 58.04 % Gross profit margin 91.45 % 89.91 % 1.54 % Total Gross profit $ 10,902 $ 6,258 $ 4,644 74.21 % Gross profit margin 73.27 % 33.02 % 40.25 % Total gross profit increased by $4,644, or 74.21%, from $6,258 for the three months ended June 30, 2025 to $10,902 for the three months ended June 30, 2026. Gross profit margin increased by 40.25 percentage points, from 33.02% to 73.27%. The increase reflected the greater contribution from higher-margin application and project management services and the significant reduction in project staff costs, partially offset by lower total revenue. The improvement in gross profit margin also reflected the current-period revenue mix and lower direct project costs. Other revenue represented 77.62% of total revenue for the three months ended June 30, 2026, compared with 39.21% in the prior-year period, while project staff costs decreased substantially. These factors increased gross profit despite the decline in total revenue. Gross profit from major project type is summarized as follows: For the three months ended June 30, % of 2026 2025 Variance variance Commercial Gross profit $ 6,050 $ (2,469 ) $ 8,519 (345.04 )% Gross profit margin 85.32 % (30.40 )% 115.72 % Industrial Gross profit $ 4,457 $ 7,432 $ (2,975 ) (40.03 )% Gross profit margin 100.00 % 100.00 % 0.00 % Institutional Gross profit $ - $ - $ - - Gross profit margin - - - Residential Gross profit $ 395 $ 1,295 $ (900 ) (69.50 )% Gross profit margin 11.86 % 38.08 % (26.22 )% Total Gross profit $ 10,902 $ 6,258 $ 4,644 74.21 % Gross profit margin 73.27 % 33.02 % 40.25 % Gross profit from commercial projects improved by $8,519, from a gross loss of $2,469 for the three months ended June 30, 2025 to gross profit of $6,050 for the three months ended June 30, 2026. The gross profit margin increased from (30.40%) to 85.32%, primarily reflecting the mix of commercial work and lower direct project costs in the current period. Gross profit from industrial projects decreased by $2,975, or 40.03%, from $7,432 for the three months ended June 30, 2025 to $4,457 for the three months ended June 30, 2026. The gross profit margin was 100.00% in both periods based on the costs allocated to these projects. No gross profit from institutional projects was recognized during either of the three months ended June 30, 2026 or 2025. 8 Gross profit from residential projects decreased by $900, or 69.50%, from $1,295 for the three months ended June 30, 2025 to $395 for the three months ended June 30, 2026. Gross profit margin decreased from 38.08% to 11.86%, primarily reflecting the mix and stage of residential work performed during the current period. No gross profit from land projects was recognized during either of the three months ended June 30, 2026 or 2025. Operating expenses Operating expenses consist of the following: For the three months ended June 30, % of 2026 2025 Variance variance Depreciation and amortization $ 924,586 $ 40 $ 924,546 N/M % Selling, general and administrative 243,574 173,031 70,543 40.77 % Professional services 254,035 1,167,823 (913,788 ) (78.25 )% Advertising and marketing 43,135 57,988 (14,853 ) (25.61 )% Salaries and wages 449,795 340,889 108,906 31.95 % Total operating expenses $ 1,915,125 $ 1,739,771 $ 175,354 10.08 % Depreciation and amortization increased by $924,546, from $40 for the three months ended June 30, 2025 to $924,586 for the three months ended June 30, 2026. The increase primarily resulted from depreciation and amortization of property and equipment and intangible assets placed in service after the prior-year period. Selling, general and administrative expenses increased by $70,543, or 40.77%, from $173,031 for the three months ended June 30, 2025 to $243,574 for the three months ended June 30, 2026. The increase primarily reflected higher administrative and corporate operating costs associated with the Company’s expanded operations. Professional services decreased by $913,788, or 78.25%, from $1,167,823 for the three months ended June 30, 2025 to $254,035 for the three months ended June 30, 2026. The decrease primarily reflected higher legal, accounting, consulting and public-company readiness costs incurred in the prior-year period in connection with the Company’s IPO and related regulatory matters. Advertising and marketing expenses decreased by $14,853, or 25.61%, from $57,988 for the three months ended June 30, 2025 to $43,135 for the three months ended June 30, 2026, primarily due to lower marketing and promotional spending during the current period. Salaries and wages increased by $108,906, or 31.95%, from $340,889 for the three months ended June 30, 2025 to $449,795 for the three months ended June 30, 2026. The increase primarily reflected additional personnel and compensation costs associated with the Company’s expanded operations, including its U.S. activities. The team is currently focused on establishing the Company’s presence in the U.S. through relationship-building with local firms, early-stage engagement with clients, and preparation for launching AI-driven architectural services and tokenization services of certain projects. While still in the investment phase, these initiatives are expected to support the Company’s long-term positioning in high-growth markets and demonstrate early operational traction. Other income (expense) Other income (expense) primarily consists of other income, interest income and interest expense. Interest income . The Company recorded interest income of $4 and $252 for the three months ended June 30, 2026 and 2025, respectively. 9 Interest expense on bank borrowings . Interest expense was $3,234 and $3,542 for the three months ended June 30, 2026 and 2025, respectively. Other income includes miscellaneous income recognized during the respective periods. Other income. The Company recorded other income of $6,306 and $9,026 for the three months ended June 30, 2026 and 2025, respectively. Income tax expense. Our Company is incorporated in the Cayman Islands. Under the current laws of the Cayman Islands, our Company is not subject to tax on income or capital gain. Additionally, upon payments of dividends to the shareholders, no Cayman Islands withholding tax will be imposed. Our operating subsidiary, Office for Fine Architecture Limited, is subject to income taxes within Hong Kong at the applicable tax rate on taxable income. Hong Kong profit tax rates are 8.25% on assessable profits up to $255,102 (HK$2,000,000), and 16.5% on any part of assessable profits over $255,102 (HK$2,000,000). The Company believes there were no uncertain tax positions as of June 30, 2026 and 2025, respectively. The Company’s subsidiary OFA Financial was incorporated in Delaware and is treated as United States corporations for US federal income tax purposes per the Internal Revenue Code (US) and are thereby subject to federal income tax on its worldwide income. The applicable U.S. federal corporate income tax rate is 21%. The Company is exempt from Delaware state corporate income tax as it does not conduct business within the state of Delaware, though it remains subject to the annual Delaware franchise tax. The Company’s subsidiary Office for Fine Architecture, Inc. was incorporated in California and is treated as a United States corporation for US federal income tax purposes per the Internal Revenue Code (US) and are thereby subject to federal income tax on its worldwide income at a statutory rate of 21%. In addition, Office for Fine Architecture, Inc. is subject to California state corporate tax laws and, if it conducts business or has income sourced to California, is generally subject to California corporation tax and applicable California franchise tax obligations. Guangzhou Zhiyi Consulting Services Co., Ltd. is governed by the income tax laws of the PRC and the income tax provisions in respect to operations in the PRC is calculated at the applicable tax rates on the taxable income for the periods based on existing legislation, interpretations and practices in respect thereof. Under the Enterprise Income Tax Laws of the PRC (the “EIT Laws”), domestic enterprises and Foreign Investment Enterprises (the “FIEs”) are usually subject to a unified 25% enterprise income tax rate while preferential tax rates, tax holidays and even tax exemption may be granted on a case-by-case basis. The Company’s subsidiaries incorporated in Japan are subject to Japanese national and local corporate income taxes on their worldwide taxable income. For qualifying small and medium-sized enterprises with paid-in capital of JPY100 million or less, the national corporate tax rate is 15% on annual taxable income up to JPY8 million and 23.2% on annual taxable income exceeding JPY8 million. Including applicable local taxes, the effective statutory tax rate generally ranges from approximately 21.94% to 34.43% for fiscal years beginning on or after April 1, 2026, depending on taxable income and the applicable local tax rates. The Company believes there were no uncertain tax positions as of June 30, 2026 and March 31, 2026. The Company does not expect that its assessment regarding unrecognized tax positions will materially change over the next 12 months. The Company is not currently under examination by an income tax authority and has not been notified that an examination is contemplated. Net loss. As a result of the foregoing, the Company reported a net loss of $1,901,151for the three months ended June 30, 2026, compared with a net loss of $1,727,777 for the three months ended June 30, 2025. Other comprehensive loss. Foreign currency translation adjustment amounted to $1,335 and ($11,524) for the three months ended June 30, 2026 and 2025, respectively. For the 2026 period, the Company translated the financial statements of its foreign operations using period-end exchange rates of US$1.00 to HK$7.84, RMB6.79 and JPY162.58, and average exchange rates of US$1.00 to HK$7.84, RMB6.80 and JPY159.44. For the 2025 comparative period, the applicable period-end and average Hong Kong dollar exchange rates were US$1.00 to HK$7.84 and US$1.00 to HK$7.80, respectively; the PRC and Japan subsidiaries were not included in the comparative period. Changes in the HK$, RMB and JPY exchange rates relative to the U.S. dollar may affect the Company’s reported financial results without reflecting an underlying change in its business or operating performance. 10 Liquidity and Capital Resources To date, the Company has financed its operations primarily through equity financings, bank borrowings and related-party funding. The Company expects to support future operations through available cash, cash generated from operations, existing financing arrangements and additional capital-raising activities, as needed. The availability and terms of additional financing are subject to market conditions and the satisfaction of applicable contractual conditions. As reflected in the unaudited condensed consolidated financial statements, the Company incurred a net loss of $1,901,151 for the three months ended June 30, 2026, compared with a net loss of $1,727,777 for the three months ended June 30, 2025. As of June 30, 2026, the Company had unrestricted cash of $178,057 and restricted cash of $1,680,000, compared with unrestricted cash of $1,033,466 and restricted cash of $1,680,000 as of March 31, 2026. The Company had a working capital deficit of $4,577,805 as of June 30, 2026, compared with a working capital deficit of $4,111,677 as of March 31, 2026. Working capital requirements are influenced by the size of the Company’s operations, the volume and value of sales contracts, the progress of customer contracts and the timing of collections and payments. As of June 30, 2026, the Company had outstanding bank borrowings of $469,880, of which $1,505 was payable within one year and $468,375 was payable after one year. The bank borrowings bear interest at an annual rate of 3.000%. On December 11, 2025, the Company received a letter from the Staff notifying the Company that the closing bid price per share for its Class A Ordinary Shares was below $1.00 for a period of 30 consecutive business days and that the Company did not meet the minimum bid price requirement set forth in Nasdaq Listing Rule 5550(a)(2). Pursuant to Nasdaq Listing Rule 5810(c)(3)(A), the Company had until the Compliance Period, to regain compliance with Nasdaq’s minimum bid price requirement. On June 9, 2026, the Company received the Letter from the Staff notifying the Company that the Company is eligible for the Second Compliance Period, or until the Compliance Date, to regain compliance, based on the Staff’s determination of the Company meeting the continued listing requirement for market value of publicly held shares and all other initial listing standards for Nasdaq, with the exception of the minimum bid price requirement, and the Company’s written notice to Nasdaq of its intention to cure the deficiency during the Second Compliance Period, by effecting a share consolidation, if necessary. The Letter has no immediate impact on the listing of the Company’s Ordinary Shares on Nasdaq. If at any time during the Second Compliance Period the closing bid price of the Company’s Ordinary Shares is at least $1.00 per share for a minimum of 10 consecutive business days (which may be extended to be a period of up to 20 consecutive business days in the discretion of the Staff), Nasdaq will provide the Company with written confirmation of compliance. The Letter does not result in the immediate delisting of the Company’s Class A Ordinary Shares, and the shares will continue to trade uninterrupted under the symbol “OFAL.” If the Company does not regain compliance by the Compliance Date, the Staff will provide written notification that the Company’s Ordinary Shares is subject to delisting. At that time, the Company may appeal the delisting determination to a hearings panel pursuant to the procedures set forth in the applicable Nasdaq listing rules. However, there can be no assurance that, if the Company receives a delisting notice and appeals the delisting determination by Nasdaq to the panel, such appeal would be successful. On May 21, 2026, at an extraordinary general meeting, the shareholders approved and authorized the Board to effect a one-for-ten share consolidation of the Company’s Class A Ordinary Shares. On July 27, 2026, the Company announced that the share consolidation would become effective at 12:01 a.m. Eastern Time on July 31, 2026. All Class A share and per-share amounts presented in the condensed consolidated financial statements have been retroactively adjusted to reflect the share consolidation. The Company’s Ordinary Shares have been redesignated as Class A Ordinary Shares and have commenced trading on Nasdaq on December 17, 2025 as Class A Ordinary Shares under the same symbol “OFAL.” 11 The Company believes that its current cash and cash flows provided by operating activities, loans from banks, and the net proceeds from its IPO will be sufficient to meet its working capital needs in the next 12 months from the balance sheet date. If additional funding is needed, the Company believes it would have access to supplemental bank facilities or bridge financing options, subject to prevailing market conditions. No assurance can be given, however, that additional financing, if required, would be available at all or on favorable terms. Such financing may include the use of additional debt or the sale of additional equity securities. Any financing which involves the sale of equity securities or instruments that are convertible into equity securities could result in immediate and possibly significant dilution to the existing shareholders. Even though the management believes that it will be able to successfully execute its business plan, which includes increasing market acceptance of the Company’s services to boost its sales volume to achieve economies of scale while applying more effective marketing strategies and cost control measures to better manage operating cash flow position, third-party financing and capital issuance, and meet the Company’s future liquidity needs, there can be no assurances in that regard. In response to the net loss of $1,901,151 for the three months ended June 30, 2026 and the working capital deficit of $4,577,805 as of June 30, 2026, the Company has implemented, and continues to pursue, measures designed to strengthen its liquidity and capital position. First, in May 2025 the Company completed its IPO, generating net proceeds of approximately $15.3 million that materially strengthened its cash position and capital base. Second, the Company has secured access to committed equity financing: (i) on October 29, 2025, it entered into the PIPE Purchase Agreement with Greentree and TriCore, providing for the issuance and sale, in multiple closings, of up to $50,000,000 in stated value of Preferred Shares; and (ii) on July 14, 2025, it entered into a Purchase Agreement with Atsion, establishing the Equity Facility. The Equity Facility is entirely at the Company’s discretion and does not represent a committed obligation or guaranteed proceeds; amounts are drawn, if at all, solely at the Company’s election and subject to the terms of the Atsion Purchase Agreement. Third, through the arrangement with the Contractor, the Company intends to commercialize the platform and to transition a portion of its design operations from a traditional project-based model toward a scalable, subscription-based AI software offering, which management expects to broaden the Company’s revenue base and support its longer-term growth and liquidity objectives. Fourth, the Company continues to generate recurring revenue from its core design, fit-out, project-management and platform services, and is expanding beyond Hong Kong into the Greater Bay Area and international markets to diversify its revenue base. In addition to its U.S. operations, the Company maintains business activities and market presence in Hong Kong and Japan through its subsidiaries, strategic partnerships, and project development initiatives. Fifth, holders of the Company’s Preferred Shares have elected to convert a portion of their holdings into Class A Ordinary Shares, reducing the Company’s potential cash redemption obligations. Finally, the Company continues to actively manage operating expenditures and discretionary spending—including staffing, subcontractor and marketing costs—to preserve liquidity, and it retains access to existing bank credit facilities and may pursue short-term bridge financing if required. Based on these plans, which management believes are probable of being effectively implemented, management believes the Company will have sufficient liquidity to meet its obligations as they become due for at least twelve months from the date these consolidated financial statements are issued. The Company is well-positioned to support its operations and execute its growth strategies over at least the next twelve months. As a result, management has concluded that there is no substantial doubt about the Company’s ability to continue as a going concern, and accordingly the unaudited condensed consolidated financial statements do not include any related adjustments. The following table sets forth a summary of the cash flows for the three months ended June 30, 2026 and 2025: For the three months ended June 30, 2026 2025 Net cash used in operating activities $ (1,331,758 ) $ (12,647,578 ) Net cash used in investing activities $ (3,264 ) $ (1,442 ) Net cash provided by financing activities $ 471,000 $ 15,308,000 Net increase (decrease) in cash and restricted cash $ (864,022 ) $ 2,658,980 Effect of currency translation on cash and cash equivalents $ 8,613 $ (19,567 ) Cash and restricted cash at the beginning of the period $ 2,713,466 $ 31,950 Cash and restricted cash at the end of the period $ 1,858,057 $ 2,671,363 12 As of June 30, 2026, the Company had total cash and restricted cash of $1,858,057, compared with $2,713,466 as of March 31, 2026. Of this amount, $178,057 represented unrestricted cash available for general corporate and working-capital purposes, and $1,680,000 represented restricted cash held in a non-interest-bearing escrow account maintained at East West Bank by Finuvia LLC, an affiliate of Precursor, a shareholder of the Company. The restricted cash is not available for general use and is subject to release only upon satisfaction of the conditions specified in the underlying agreements. The Company had a working capital deficit of $4,577,805 as of June 30, 2026, compared with $4,111,677 as of March 31, 2026, and incurred a net loss of $1,901,151 for the three months ended June 30, 2026. Accordingly, liquidity available for general operations is more limited than the total cash and restricted cash balance. Operating Activities Net cash used in operating activities was $1,331,758 for the three months ended June 30, 2026, primarily due to the net loss of $1,901,151 partially offset by noncash depreciation and amortization of approximately $924,586. Changes in related-party balances, accounts payable, accrued expenses and other working-capital accounts also affected operating cash flows during the period. Net cash used in operating activities was $12,647,578 for the three months ended June 30, 2025, primarily due to the net loss of $1,727,777 and a $12,047,040 increase in prepaid expenses related to the purchase of intellectual property. These cash outflows were partially offset by noncash share-based compensation of $83,571 and shares issued for professional services of $800,000, together with changes in working-capital accounts. Investing Activities Net cash used in investing activities was $3,264 for the three months ended June 30, 2026 and consisted of purchases of property and equipment. Net cash used in investing activities was $1,442 for the three months ended June 30, 2025, primarily attributable to purchases of property and equipment of $1,442. Financing Activities Net cash provided by financing activities was $471,000 for the three months ended June 30, 2026, attributable to advance proceeds received for preferred stock subscriptions that had not been issued as of the balance sheet date and were recorded as preferred stock payable. Net cash provided by financing activities was $15,308,000 for the three months ended June 30, 2025, attributable to the net proceeds from the Company’s IPO. Trend Information Except for the information disclosed, the Company is not aware of any trends, uncertainties, demands, commitments or events that are reasonably likely to have a material effect on our net revenues, income from continuing operations, profitability, liquidity or capital resources, or that would cause reported financial information not necessarily to be indicative of future operating results or financial condition. However, the Company remains cautiously optimistic about the medium-term outlook, particularly in light of new residential contracts signed in February 2026 and a gradual pickup in client engagement activity in the following period. Historically focused on the Hong Kong market, we are actively pursuing geographic diversification to expand our operational footprint to oversea markets. We are also investing in digital transformation initiatives, specifically leveraging artificial intelligence (AI) to enhance design efficiency, optimize labor costs and create new revenue stream. Commitments and Contingencies Commitments Except for the commitment fee payable to Atsion described above (Note 11), the Company had no significant capital or other commitments as of June 30, 2026. 13 Contingencies The Company is subject to legal proceedings and regulatory actions in the ordinary course of business. The results of such proceedings cannot be predicted with certainty, but the Company does not anticipate that the final outcome arising out of any such matters will have a material adverse effect on its financial position, cash flows or results of operations on an individual basis or in the aggregate. As of June 30, 2026 and 2025, the Company is not a party to any material legal or administrative proceedings. The following table summarizes the contractual obligations as of June 30, 2026: Payments due by period Less than 1 – 3 4 – 5 More than Contractual obligations Total 1 year years years 5 years Bank borrowings $ 469,880 $ 1,505 $ 80,321 $ 99,451 $ 288,603 Future lease payments 694,562 113,702 278,338 258,484 $ 44,038 $ 1,164,442 $ 115,207 $ 358,659 $ 357,935 $ 332,641 Inflation While global inflation has retreated from its peak levels, the economic landscape remains constrained by persistently elevated interest rates. The prolonged high-rate environment continues to dampen financing activity and discretionary spending in Hong Kong. Consequently, we face ongoing inflationary pressure on operating costs, particularly wages and materials, while simultaneously contending with softening client demand. This dual pressure creates a challenging margin environment, requiring stringent cost controls to preserve profitability. In order to adapt, we and our subsidiaries would endeavor to seek new business opportunities and would continue to take a conservative approach to cost budgeting, including, but not limited to, withholding distribution of staff bonuses, reconsidering staffing needs and applying greater pressure on the pricing negotiations with subcontractors and suppliers. Seasonality The nature of our business does not appear to be affected by seasonal variations. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not required for smaller reporting companies.