AIRWA INC. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited financial statements and the related notes appearing in this Quarterly Report on Form 10-Q. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks, uncertainties, and assumptions. You should read the “Cautionary Statement Regarding Forward-Looking Statements” and “Risk Factors” sections of our Form 10-K for the period ended April 30, 2025 for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. All dollar figures expressed in terms of millions are rounded to one decimal place. All percentages are calculated using the unrounded underlying figures and rounded to the nearest whole number . Business Overview We operate through Yuanyu Enterprise Management Co., Limited (“YYEM”), a Hong Kong-based subsidiary established in November 2021 that is engaged in the emerging love and marriage market sector. YYEM’s mission is to empower global connections through innovative matchmaking technology. We own advanced patents and other proprietary technology which we license out, and we are using this intellectual property to develop an AI-powered matchmaking platform to license to partners worldwide, enabling them to create localized matchmaking experiences tailored to their specific markets and cultures. We believe our pioneering technology has the power to transform the matchmaking industry, leading to greater success for our licensees and their clients, and ultimately leading to more people finding successful life partnerships. We have license agreements in place with various entities to use the IP in numerous countries across Asia, Europe, and Africa, generating royalties of $6.0 million in the six months ended October 31, 2025. In January 2025, as part of our efforts to diversify our revenue streams, we announced the development of a social networking vertical, through which we would provide content to TikTok and similar social media ventures. Our revenue relating to social networking will depend on performance-based conversion metrics. We expect this business to begin generating revenue in the current fiscal year. In August 2025, we signed a $500 million joint venture agreement to form AiRWA Exchange, a digital asset exchange focused on the tokenization of real-world assets (RWA), specifically U.S. stocks. AiRWA Exchange is not yet operational and generating revenue, but we have successfully completed test runs for settling trades of tokenized U.S. equities, positioning AiRWA Exchange to offer users the ability to trade digital representations of U.S. stocks with the same simplicity and speed as cryptocurrencies — with transactions settled within seconds and recorded on the blockchain’s immutable ledger, which is accessible 24 hours per day. We believe AiRWA Exchange will mark a significant step toward bridging the gap between conventional financial systems and the emerging decentralized economy. To support the development of our AiRWA Exchange, we intend to leverage our commercial relationships, launching our Exchange services to our JV partner’s millions of users to help scale the Exchange’s operations more quickly, and partnering with a leading provider of digital asset intelligence and security solutions, to add advanced monitoring, threat detection, and compliance capabilities for the long-term integrity of the AiRWA Exchange ecosystem. Our change of name to AiRWA, Inc. reflects our intention to make AiRWA Exchange core to our business and to focus on our goal of enhancing global access to tokenized financial products. Fundraising and Corporate Developments Private Placement On August 19, 2025, we completed a private placement, issuing 20,000,000 units (each unit comprising one share of common stock and two five-year warrants with an exercise price of $0.89 and cashless exercise if no effective registration is in place), which raised gross proceeds of $4,600,000, without taking into account any exercise of the warrants. ATM Facility Under a prospectus supplement dated August 22, 2025 that amends the prospectus supplement dated June 11, 2025 and its accompanying prospectus dated June 11, 2025, filed with the Securities and Exchange Commission as part of our registration statement on Form S-3 (File No. 333-284188) relating to the offer and sale of our common stock through A.G.P./Alliance Global Partners (“A.G.P.”) in “at the market offerings” (the “ATM facility”) as defined in Rule 415 promulgated under the Securities Act of 1933, as amended, pursuant to the sales agreement with A.G.P. dated as of January 8, 2025, the amount we could raise under our ATM facility was specified to be $200 million. As of December 15, 2025, we had sold 21,775,662 shares (adjusted for the Reverse Stock Split) and raised $177,099,426 following payment to the Placement Agent of 3% of the gross proceeds and certain other expenses. 1 Acquisition On October 22, 2025, we entered into a share purchase agreement with Mr. Zhou, the Chairman of the Company, to acquire from him the 30% of the share capital of our YYEM operating subsidiary that we did not already own for $36,000,000, payable in cash. Reverse Split Also on October 22, 2025, we filed a Certificate of Amendment to our Certificate of Incorporation with the Secretary of State of the State of Delaware to effect a reverse stock split of the Common Stock at a ratio of 1-for-50 (the “Reverse Stock Split”), which became effective on October 27, 2025. Components of Results of Operations Revenue Our revenue is generated from license fees paid by customers for the use of our technology. Expenses Cost of revenue consists primarily of amortization charges against intangible assets (specifically, technology rights), which are directly attributable to revenue. General and administrative expense primarily consists of salaries and benefits for employees involved in general corporate functions; professional fees for external legal, accounting, and other consulting services; travel expenses; and other general office and administrative expenses. Gross Profit Gross profit is calculated as revenue less cost of revenue. Results of Operations Six months ended, and three months ended, October 31, 2025 compared to the six months ended, and three months ended, October 31, 2024 The following are the results of our operations for the six-month period ended, and the three-month period ended, October 31, 2025, as compared to the corresponding periods a year earlier: Six Months Ended October 31, Change Three Months Ended October 31, Change 2025 2024 Amount % 2025 2024 Amount % Revenue $ 6,000,000 $ 6,545,454 (545,454 ) -8 % $ 3,000,000 3,272,727 $ (272,727 ) -8 % Cost of Revenue 1,488,462 1,488,462 - 0 % 744,231 744,231 - 0 % Gross Profit 4,511,538 5,056,992 (545,454 ) -11 % 2,255,769 2,528,496 (272,727 ) -11 % Operating Expenses: Selling and Marketing Expenses 450,000 - 450,000 100 % 450,000 - 450,000 100 % General and Administrative Expenses 2,515,471 288,002 2,227,469 773 % 1,751,085 199,482 1,551,603 778 % Total Operating Expenses 2,965,471 288,002 2,677,469 930 % 2,201,085 199,482 2,001,603 1,003 % Operating Income 1,546,067 4,768,990 (3,222,923 ) -68 % 54,684 2,329,014 (2,274,331 ) -98 % 2 Revenue Our revenue decreased by $0.5 million, or 8%, from $6.5 million for the six-month period ended October 31, 2024 to $6.0 million for the six-month period ended October 31, 2025, Our revenue decreased by $0.3 million or 8.0% from $3.2 million for the three- month period ended October 31, 2024 to $3.0 million for the three-month period ended October 31, 2025 which was attributable to a minor timing difference resulting from the dates on which the various license agreements were signed Cost of Revenue Our cost of revenue did not change because it consists of the amortization of our IP intangible assets, which remained constant. Selling and Marketing Expenses Our selling and marketing expenses were $0.5 million in the six-month and three-month periods ended October 31, 2025 as we began amortizing agent fees in relation to the Company’s previously announced TikTok advertising business. General and Administrative Expenses General and administrative expenses, which mainly consist of salaries, professional fees, and other general office and administrative expenses, increased by $2.2 million, from $0.3 million to $2.5 million, for the six-month period ended October 31, 2025 compared with the same period a year earlier. These expenses increased by $1.55 million, from $0.2 million to $1.75 million, for the three-month period ended October 31, 2025 compared with the same period a year earlier. These increases were primarily driven by higher costs relating to YYEM becoming an operating subsidiary of a Nasdaq-listed company, which occurred in November 2024, between the two comparison periods. These costs included audit fees, investor relations consulting fees, legal fees, insurance premiums, and directors’ and officers’ compensation. Liquidity and Capital Resources We finance our operations primarily through cash generated from financing activities. We had working capital, or net current assets, of $156.0 million as of October 31, 2025, compared to $15.9 million as of April 30, 2025, an increase of approximately $140.5 million, or 884%. In comparison with April 30, 2025, our accounts receivable as of October 31, 2025, decreased by $3.0 million as a result of collections from a major customer during the quarter. The reduction was driven by the receipt of payments on outstanding invoices and reflects normal fluctuations in working capital related to the timing of billings and collections. As of October 31, 2025, we had retained earnings of $27 million. Our cash and cash equivalents increased by about $105.45 million, from $0.05 million as of April 30, 2025 to $105.5 million as of October 31, 2025, because of the settlement of accounts receivable and as a result of the funds we raised under our ATM facility, as described above. The following is a summary of our cash flows from operating, investing, and financing activities for the six-month periods ended October 31, 2025 and 2024: Six Months Ended October 31, Change 2025 2024 Amount % Cash Flow (Used in)/Provided by Operating Activity $ (31,889,74 6 ) $ 178,148 $ (32,067,894 ) 18,001 % Cash Flow Used in Investing Activity (36,000,000 ) - (36,000,000 ) N/A Cash Flow Provided by Financing Activities $ 173,343,151 $ 416,068 $ 172,927,083 41,562 % Net cash used in operating activities was $31.9 million for the six-month period ended October 31, 2025, compared with $0.2 million of net cash provided by operating activities for the same period in the prior year, a decline of $32.1 million in operating cash flow. This change was driven primarily by deposits, prepayments and other receivables, namely a $377 million decline in net current assets as a result of higher deposits and prepayments made in connection with new business activities and advance payments for services and rental obligations. These amounts required cash outflows during the period, which were recorded as reductions of assets rather than as current expenses. As a result, these deposits and prepayments reduced operating cash flow, with the related expenses being recognized in future periods. Net cash provided by operating activities was approximately $0.18 million for the six months ended October 31, 2024. Net income of approximately $3.9 million was largely offset by the combined effects of a $4.2 million increase in accounts receivable resulting from delayed payments from customers, which negatively affected operating cash flow, and a $1.8 million decrease in other receivables due to collections received during the period, which partially mitigated the increase in accounts receivable. Our cash flow used in investing activity for the six-month period ended October 31, 2025 consisted of the $36.0 million purchase of all of the shares of our operating subsidiary that we did not already own, as more fully described above. The Company did not engage in any investing activities during the six-month period ended October 31, 2024. Cash flow provided by financing activities rose by approximately $173.3 million for the six-month period ended October 31, 2025, as a result of private placement proceeds and the receipt of funds raised under our ATM facility. Net cash provided by financing activities during the six-month period ended October 31, 2024 reflected changes in related-party balances, including an increase in amounts due to related parties and a decrease in amounts due from related parties, representing financing support and collections received during the period. Based on our current operating plans, we believe that our existing cash at the time of this filing will be sufficient to meet our anticipated operating needs for at least the next 12 months and that we will have sufficient financial resources available through capital markets fundraising if we should decide to incur additional capital expenditure or make other investments. Our future capital requirements will depend upon many factors, including competing technological and market developments, the development of our plans in respect of our AiRWA Exchange, and decisions regarding acquisitions. Off Balance Sheet Arrangements We do not have any off balance sheet arrangements that have or are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditure, or capital resources that are material to investors. Significant Accounting Policies Our significant accounting policies are disclosed in Note 2 to the accompanying financial statements. The following is a summary of those accounting policies that involve significant estimates and judgment of management. 3 Use of Estimates The preparation of these financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to long-lived assets and deferred income tax asset valuation allowances. The Company bases its estimates and assumptions on current facts, historical experience, and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected. Allowance for Credit Losses Accounts receivable are stated at their historical carrying amount net of allowance for credit losses. Allowance for credit loss represents management’s best estimate of probable losses inherent in the portfolio. On June 30, 2022, the Company adopted ASC 326, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This guidance replaced the “incurred loss” impairment methodology with an approach based on “expected losses” to estimate credit losses on certain types of financial instruments and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The allowance for credit losses is a valuation account that is deducted from the cost of the financial asset to present the net carrying value at the amount expected to be collected on the financial asset. The Company considers various factors, including historical collection experience, the age of the accounts receivable balances, the credit quality and specific risk characteristics of its customers, and current economic conditions, to develop an estimate of credit losses. Additionally, the Company makes specific allowance for credit losses based on any specific knowledge the Company has acquired that might indicate that an account is uncollectible. The facts and circumstances of each account may require the Company to use substantial judgment in assessing its collectability. After all attempts to collect a receivable have failed, the receivable is written off against the allowance. As of October 31, 2025 and April 30, 2025, the Company had made no reserves. Impairment of long-lived assets Long-lived assets are evaluated for impairment whenever events or changes in circumstances (such as a significant adverse change to market conditions that will impact the future use of the assets) indicate that the carrying value may not be fully recoverable or that the useful life is shorter than the Company had originally estimated. When these events occur, the Company evaluates the impairment by comparing carrying value of the assets to an estimate of future undiscounted cash flows expected to be generated from the use of the assets and their eventual disposition. If the sum of the expected future undiscounted cash flows is less than the carrying value of the assets, the Company recognizes an impairment loss based on the excess of the carrying value of the assets over the fair value of the assets. Impairment charge recognized for the six months ended October 31, 2025 and 2024 was nil. Fair value of financial instruments Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be either recorded or disclosed at fair value, the Company considers the principal or most advantageous market in which it would transact, and it also considers assumptions that market participants would use when pricing the asset or liability. Revenue Recognition Revenue represents the amount of consideration the Company is entitled to upon the transfer of promised goods or services in the ordinary course of the Company’s activities and is recorded net of VAT. The Company follows five steps for the revenue recognition: (i) identify the contracts with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract and (v) recognize revenue when (or as) the entity satisfies a performance obligation. 4 Consistent with the criteria of ASC 606, Revenue from Contracts with Customers, the Company recognizes revenue when performance obligations are satisfied by transferring control of a promised good or service to a customer. For performance obligations that are satisfied at a point in time, the Company also considers the following indicators to assess whether control of a promised good or service is transferred to the customer: (i) right to payment, (ii) legal title, (iii) physical possession, (iv) significant risks and rewards of ownership and (v) acceptance of the good or service. The Company recognizes revenue in an amount that reflects the consideration to which it expects to be entitled for its products and services. Accounts receivable are recorded when obligations have been performed and billed to the customer. During the period after the right to payment has become unconditional but before a bill has been issued, the amount owed is recorded as accrued revenue (receivables). The Company’s terms and conditions vary by customer and typically provide net 90-day terms. The Company receives royalty income in the form of license fees from customers for the use of the Company’s technology rights by the customers. Royalty income is recognized over time when the Company’s technology rights are used by the customers in accordance with the terms and conditions of the relevant license agreement. Revenue is recognized by the Company not only when invoices have been signed and confirmed by customers but also at the end of each year over the term of the relevant license agreements as the service is provided to the customers. Income Taxes The Company has adopted ASC 740, Income Taxes, which requires the use of the asset and liability method of accounting for income taxes. Under the asset and liability method of ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Prior to the acquisition by YYAI, YYEM was a limited liability company. As a limited liability company, the Company’s taxable income or loss is allocated to members in accordance with their respective percentage ownership. Therefore, no provision or liability for federal income taxes has been included in the financial statements. In the event of an examination of the Company’s tax return, the tax liability of the members could be changed if an adjustment in the Company’s income is ultimately sustained by the taxing authorities. Share-Based Payment The Company accounts for share-based compensation in accordance with ASC 718, Compensation—Stock Compensation. Under the fair value recognition provisions of this topic, stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as an expense on a straight-line basis over the requisite service period, which is the vesting period. Recent Accounting Pronouncements The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its financial condition, results of operations, cash flows, or disclosures. 5 In November 2024, the FASB issued ASU 2024-03, Reporting Comprehensive Income — Expense Disaggregation Disclosures, which focuses on improving the disclosures about a public business entity’s expenses and address requests from investors for more detailed information about the types of expenses (including purchases of inventory, employee compensation, depreciation, amortization, and depletion) in commonly presented expense captions (such as cost of sales, general and administrative expenses, and research and development). ASU 2024-03 is effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Early adoption is permitted. The Company is currently evaluating the impact of adopting the standard and does not expect that the adoption of this guidance will have a material impact on its financial position, results of operations and cash flows. In November 2024, the FASB issued ASU 2024-04, Debt—Debt with Conversion and Other Options (Subtopic 470-20): Induced Conversions of Convertible Debt Instruments . The amendments provide guidance on accounting for induced conversions of convertible debt instruments. The amendments are effective for annual reporting periods beginning after December 15, 2025, and interim reporting periods within those annual reporting periods. Early adoption is permitted for entities that have adopted the amendments in ASU 2020-06. The Company is currently evaluating the impact of this amendment and does not expect that the adoption of this guidance will have a material impact on its financial position, results of operations, or cash flows. In January 2025, the FASB issued ASU 2025-01, Income Statement — Reporting Comprehensive Income — Expense Disaggregation Disclosures. The amendment in ASU 2025-01 amends the effective date of ASC 2024-03 to clarify that all public business entities are required to adopt the guidance in annual reporting periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027. Early adoption of is permitted. The Company is currently evaluating the impact of this amendment and does not expect that the adoption of this guidance will have a material impact on its financial position, results of operations and cash flows. In March 2025, the FASB issued ASU 2025-02, Liabilities (Topic 405): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 122 . The amendments are effective immediately and must be applied on a fully retrospective basis to annual periods beginning after December 15, 2024. The Company does not expect that the adoption of this guidance will have a material impact on its financial position, results of operations, or cash flows. In May 2025, the FASB issued ASU 2025-03, Business Combinations (Topic 805) and Consolidation (Topic 810): Determining the Accounting Acquirer in the Acquisition of a Variable Interest Entity . The amendments provide guidance on identifying the accounting acquirer in transactions involving a variable interest entity. The amendments are effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods within those annual periods. Early adoption is permitted as of the beginning of an interim or annual reporting period. The Company is currently evaluating the impact of this amendment and does not expect that the adoption of this guidance will have a material impact on its financial position, results of operations, or cash flows. In May 2025, the FASB issued ASU 2025-04, Compensation—Stock Compensation (Topic 718) and Revenue from Contracts with Customers (Topic 606): Clarifications to Share-Based Consideration Payable to a Customer . The amendments clarify the accounting for share-based consideration payable to a customer under Topic 718 and Topic 606. The amendments are effective for annual reporting periods, including interim periods within those annual periods, beginning after December 15, 2026. Early adoption is permitted. The Company is currently evaluating the impact of this amendment and does not expect that the adoption of this guidance will have a material impact on its financial position, results of operations, or cash flows. In July 2025, the FASB issued ASU 2025-05, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets . The amendments provide a practical expedient and, if applicable, an accounting policy election to simplify the measurement of credit losses for certain receivables and contract assets. The amendments are effective for annual reporting periods beginning after December 15, 2025, and interim reporting periods within those annual reporting periods. Early adoption is permitted in any interim or annual period in which financial statements have not yet been issued or made available for issuance. The Company is currently evaluating the impact of this amendment and does not expect that the adoption of this guidance will have a material impact on its financial position, results of operations, or cash flows. In September 2025, the FASB issued ASU 2025-06, Intangibles—Goodwill and Other (Topic 350): Internal-Use Software . The standard simplifies the accounting for internal-use software costs and is effective for fiscal years beginning after December 15, 2026. The Company does not expect adoption of this standard to have a material impact on its financial statements. In December 2025, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2025-11, Interim Reporting (Topic 270): Improvements to Interim Disclosure Requirements . The standard clarifies disclosure requirements for interim financial statements and is effective for interim periods beginning after December 15, 2026. Early adoption is permitted. The Company is currently evaluating the impact of this guidance on its condensed consolidated financial statements. 6 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable.