AIRWA INC. 10-K

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS All dollar figures expressed in terms of millions are rounded to one decimal place; all dollar figures expressed in terms of thousands are rounded to the nearest thousand. All percentages are calculated using the unrounded underlying figures and rounded to the nearest whole number. Overview AI Services Through Rafael AI, the Company provides end-to-end full-cycle services designed to empower enterprises to transition seamlessly from raw data to intelligent applications. This business is structured around five interconnected AI-related modules, together forming a closed-loop system in which data generation, model refinement, and operational feedback continuously reinforce one another. Its services are tailored to specialist industries such as healthcare, industrial manufacturing, and autonomous driving. We recorded $6.6 million of revenue from our AI services business in the final quarter of our financial year ended April 30, 2026, which was the period during which Rafael AI was our subsidiary. 42 Technology Licensing Through YYEM, the Company owns patents and other proprietary technology for licensing out to partners worldwide, enabling them to create localized matchmaking experiences tailored to their specific markets and cultures. By providing such patents, we aim to enable our partners to develop matchmaking services that resonate with local users while benefiting from advanced matching algorithms, safety features, and engagement tools. Our technology licensing business generated royalties of $7.3 million in our financial year ended April 30, 2026. Advertising Our subsidiary YYEM also provides digital marketing solution services related to performance advertising across diversified advertising channels such as Google, TikTok, and Meta. Services typically include marketing strategy and planning; platform account setup and media placement; production of advertising creative (video and other content); and ongoing campaign monitoring, analytics, optimization, and reporting. We have developed key relationships integral to this business, both with companies seeking to promote their products and services and with companies that have direct buying relationships with the platforms, which we are leveraging as we build market share. This business generated approximately $12.0 million of revenue in our financial year ended April 30, 2026. Recent Developments On July 27, 2026, we entered into a share purchase agreement with Nova Innovation Tech Ltd, a BVI company, to acquire all the share capital of Oceancrest Investment Holdings Limited, a BVI holding company, which owned 97% of Best Life for $50 million (the “Base Consideration”), payable in USDT (Tether) or cash, with additional earn-out amounts payable if Best Life achieves specified revenue targets. Best Life is a cross-border consumer-goods distribution and e-commerce business, leveraging direct brand sourcing, import expertise, bonded warehousing, platform operations, offline retail access, and selected private-label development to sell Japanese and other international consumer products across China and other overseas markets. It has in place business relationships with brand owners and manufacturers upstream and with e-commerce platforms, supermarkets, specialty retailers, and online resellers downstream. While Best Life historically has focused on Asia, it has recently launched an international expansion program to the UK, the U.S., Canada, and New Zealand. On July 30, 2026, we closed on the transaction, paying $30 million toward the purchase price and receiving all of the shares of the holding company, giving us a 97% equity interest in Best Life. By October 28, we are required to pay the balance of the Base Consideration. If the Target achieves gross revenue of $10 million for the fiscal year ending December 31, 2026, the Company will make an earn-out payment of $30 million, and if it achieves gross revenue of $25 million for the fiscal year ending December 31, 2027, the Company will make an earn-out payment of $50 million. To fund the purchase of Best Life, we sold 4,526,380 shares of Common Stock on a split-adjusted basis, following the financial year end on April 30, 2026, under the Sales Agreement described below under Results of Operations — Liquidity and Capital Resources — Financing Activities, raising approximately $16.3 million in gross proceeds. Because the acquisition of Best Life occurred after April 30, 2026, it does not form part of management’s analysis of our financial condition and results of operations as of, and for the financial year ended on, that date. Components of Results of Operations Revenue Our revenue is generated from the sale of customized “data-to-AI” end-to-end solutions, from license fees paid by customers for the use of our technology, and from digital marketing solution services. 43 AI services revenue is generated from the sale of customized “data-to-AI” end-to-end solutions directly to customers. These solutions consist of highly integrated software deliverables that are designed and customized based on customers’ specific requirements. Revenue from the sale of such solutions is recognized when control of the completed software solution is transferred to and accepted by the customer. License revenue is generated from license fees paid by customers for the use of our technology. Advertising revenue is generated from the provision of digital marketing solution services related to performance advertising across diversified advertising channels. Cost of revenue Cost of revenue consists of costs directly attributable to the generation of revenue. For our AI services business, cost of revenue consists primarily of salaries, amortization charges related to intangible assets, and depreciation of property and equipment that are directly attributable to the development and delivery of our customized “data-to-AI” end-to-end solutions. For our technology licensing business, cost of revenue consists primarily of amortization charges related to intangible assets, specifically technology rights. For our advertising business, cost of revenue consists primarily of media and platform costs and third-party cooperating-platform and campaign delivery costs. General and Administrative Expenses General and administrative expenses primarily consist 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 Year Ended April 30, 2026, Compared to the Year Ended April 30, 2025 The following are the results of our operations for the year ended April 30, 2026, as compared to the year ended April 30, 2025: Year Ended April 30, Change 2026 2025 Amount % Revenue $ 25,807,289 $ 12,818,182 $ 12,989,107 101 % Cost of Revenue 22,469,620 2,976,923 19,492,697 655 % Gross Profit 3,337,669 9,841,259 (6,503,590 ) (66 )% Operating Expenses: Selling and Marketing Expenses 746,230 - 746,230 - General and Administrative Expenses 8,714,244 3,261,402 5,452,842 167 % Total Operating Expenses 9,460,474 3,261,402 6,199,072 190 % Operating (Loss)/Income (6,122,805 ) 6,579,857 (12,702,662 ) (193 )% 44 Revenue Our revenue increased by $12.9 million, or 101%, from $12.8 million for the year ended April 30, 2025 to $25.8 million for the year ended April 30, 2026, driven by the recognition of approximately $6.6 million of AI services income following the acquisition of Rafael AI and the recognition of approximately $12.0 million of advertising income following the launch of our advertising business, partially offset by an approximately $5.7 million decrease in license revenue following the termination of the related license agreements. Cost of Revenue Our cost of revenue increased by $19.5 million, or 655%, from $3.0 million to $22.5 million, primarily due to increased costs as we grew with the addition of our advertising and new AI-related businesses during the year ended April 30, 2026. In particular, Rafael AI had an uptick in expenditure on medical-related research and development from February through April 2026 as it sought to establish itself as a leader in Southeast Asia in developing AI models for traditional Chinese medicine. As a result, gross profit decreased by $6.5 million, or 66%, from $9.8 million to $3.3 million. Selling and Marketing Expenses Selling and marketing expenses, which primarily consist of salaries, office expenses, rent, utilities, and marketing fees, increased by $0.7 million, from nil for the year ended April 30, 2025, as we promoted our new advertising services and our newly acquired AI services business. General and Administrative Expenses General and administrative expenses, which mainly relate to salaries, professional fees, and other general office and administrative expenses, increased by $5.5 million, or 167%, from $3.3 million for the year ended April 30, 2025 to $8.7 million for the year ended April 30, 2026, primarily driven by the growth of our business through the acquisition of Rafael AI and related fees and expenses. Bad debt increased by approximately $1.0 million; approximately $1.3 million was paid as commission in relation to the acquisition of Rafael AI; and approximately $2.4 million of professional expenses were paid in relation to the acquisition, such as legal fees, accounting fees, and audit fees. Liquidity and Capital Resources The following table sets forth a summary of our cash flow for the years ended April 30, 2026 and 2025, as indicated. For the Years Ended April 30 2026 2025 Net cash used in operating activities $ (20,855,471 ) $ (379,388 ) Net cash used in investing activities (164,122,025 ) - Net cash provided by financing activities 197,702,960 394,781 Net increase in cash and cash equivalents 12,725,464 15,393 Cash and cash equivalents, beginning of year 54,744 39,351 Cash and cash equivalents, end of year $ 12,780,208 $ 54,744 Operating activities Net cash used in operating activities for the year ended April 30, 2026, was $20.9 million, compared with $0.4 million for the year ended April 30, 2025. The $20.5 million increase in net cash used in operating activities was primarily attributable to the change from net income of $4.6 million in fiscal year 2025 to a net loss of approximately $15.4 million in fiscal year 2026, together with increased cash deployed into digital assets and contract costs. As detailed below, these increases in cash usage were partially offset by a significantly lower increase in accounts receivable in fiscal year 2026, as well as increases in contract liabilities and accounts payable. 45 For the year ended April 30, 2026, net cash used in operating activities was $20.9 million, which was primarily attributable to (i) net non-cash and other reconciling items of $20.2 million, primarily consisting of depreciation and amortization expense, impairment losses on intangible assets, an investment in Brightstar, amounts due from a director, other receivables, and a loss on financial assets at fair value through profit or loss; (ii) an increase of approximately $19.2 million in digital assets, primarily reflecting cash used to acquire digital assets during the year; (iii) an increase of $3.8 million in contract costs, reflecting costs incurred and deferred in connection with customer contracts in our AI services business; (iv) an increase of $1.6 million in accounts receivable, primarily attributable to the timing of customer billings and collections; (v) an increase of $0.7 million in prepayments and deposits, primarily reflecting advance payments made in the ordinary course of business; and (vi) a decrease of $4.9 million in income taxes payable, primarily reflecting the settlement of tax liabilities during the year. These cash outflows were partially offset by (i) an increase of approximately $4.4 million in contract liabilities, primarily attributable to consideration received from AI services customers in advance of the satisfaction of the related performance obligations; (ii) an increase of $5.0 million in accounts payable, primarily attributable to the timing of payments to vendors and suppliers in our AI services business; (iii) a decrease of $0.6 million in other receivables, primarily attributable to the collection or settlement of previously outstanding balances; and (iv) an increase of $0.8 million in accrued expenses, primarily attributable to expenses incurred but not yet paid as of year-end. For the year ended April 30, 2025, net cash used in operating activities was approximately $0.4 million, which was primarily attributable to $8.4 million of net cash used as a result of changes in operating assets and liabilities, partially offset by $3.4 million of non-cash items, primarily consisting of $3.0 million of depreciation and amortization expense on our patents, a $0.3 million loss on financial assets at fair value through profit or loss, and shares issued to prior management upon the exercise of warrants issued in earlier periods for services rendered. Changes in operating assets and liabilities included (i) an increase of $12.1 million in accounts receivable, primarily attributable to revenue growth and the timing of customer collections; and (ii) an increase of $0.6 million in prepayments and deposits, primarily attributable to advance payments made by the Company in the ordinary course of business. These cash outflows were partially offset by (i) an increase of $2.3 million in accrued expenses, mainly attributable to the timing of payments for professional fees, compensation, and other operating expenses; and (ii) an increase of $2.0 million in income taxes payable, as income tax liabilities recognized during the year exceeded cash tax payments. The cash flow impact from accounts receivable improved significantly in fiscal year 2026. Accounts receivable increased by $1.6 million, compared with an increase of $12.1 million during fiscal year 2025, resulting in a significantly lower amount of operating cash being held as accounts receivable in fiscal year 2026. Investing Activities Net cash used in investing activities for the year ended April 30, 2026, was $164.1 million, compared with nil for the year ended April 30, 2025. The net cash used in investing activities in fiscal year 2026 was attributable to the Company’s cash payment of $36.0 million for 30% of YYEM and its purchase of $140.0 million of USDT which was later used as consideration for the purchase of Rafael AI but which was offset in part by the acquisition of Rafael AI’s approximately of $11.8 million of cash and cash equivalents. Financing Activities Net cash provided by financing activities for the year ended April 30, 2026 was $197.7 million, compared with $0.4 million for the year ended April 30, 2025. This increase in financing cash inflows was primarily attributable to the Company’s use of external equity financing in fiscal year 2026. Financing cash inflows during this year primarily consisted of (i) $172.6 million of proceeds from at-the-market offerings of shares; (ii) $14.8 million of proceeds from a registered direct offering of shares; (iii) $5.8 million of proceeds from a private placement of shares to our Chairman at the time; and (iv) $4.6 million of proceeds from another private placement. The Company also received an immaterial amount of proceeds from the exercise of warrants for cash during the year. In comparison, net cash provided by financing activities for the year ended April 30, 2025, was approximately $0.4 million, primarily attributable to an increase of approximately $0.7 million in amounts due to a related party, partially offset by an increase of approximately $0.3 million in amounts due from a related party. Accordingly, the year-over-year increase in financing cash flow primarily reflects a shift from limited related-party financing activities in fiscal year 2025 to substantial equity capital raising activities in fiscal year 2026. 46 On January 8, 2025, the Company entered into a sales agreement (the “Sales Agreement”) with A.G.P./Alliance Global Partners (the “Agent”), pursuant to which the Company could sell from time to time, at its option, shares of the Company’s common stock through or to the Agent, as sales agent or principal. Sales under the Sales Agreement would be made pursuant to the Company’s registration statement on Form S-3 (File No. 333- 279880) (the “Registration Statement”), filed with the SEC on January 8, 2025, and were described in detail in the related base prospectus and prospectus supplement, as amended, included as part of the Registration Statement. The compensation payable to the Agent as sales agent would be 3.0% of the gross proceeds from each sale of shares through or to the Agent pursuant to the Sales Agreement. During the year ended April 30, 2026, the Company sold 1,147,525 shares of common stock pursuant to the Sales Agreement for aggregate gross proceeds of approximately $172.6 million. As of the date of this Annual Report, the Company is unable to sell shares under the Sales Agreement as the Registration Statement is not available for use as a result of the Company not being current in its reporting obligations under the Securities Exchange Act of 1934. The Company does not expect to be eligible to resume sales under the Sales Agreement until at least August 1, 2027. 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 and to pay amounts potentially owing under an earn-out in respect of Best Life. Our future capital requirements will depend upon many factors, including competing technological and market developments, our R&D efforts, and decisions regarding acquisitions of further companies or other assets, and there can be no guarantee that we will be able to raise sufficient funds on acceptable terms or at all. 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. 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 an 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. 47 The Company considers various factors, including the nature of the receivable, historical collection experience, and 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 April 30, 2026 and 2025, the Company recorded an allowance for credit losses of $300,000 and nil, respectively, against other receivables. 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 flow expected to be generated from the use of the assets and their eventual disposition. If the sum of the expected future undiscounted cash flow 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. The Company recognized an impairment charge of approximately $7.5 million for the year ended April 30, 2026. No impairment charge was recognized for the prior year. 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 of 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 adopts the 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. 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. Royalty income In the case of royalty income, the Company recognizes revenue in an amount that reflects the consideration to which it expects to be entitled for its products and services. Accounts receivables are recorded when the right to consideration becomes unconditional. The Company’s terms and conditions vary by customer but typically provide net 90-day terms. 48 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 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. Advertising revenue The Company also provides digital marketing solution services related to performance advertising across diversified advertising channels (e.g., Google, Meta, etc.). Services typically include: (i) marketing strategy and planning; (ii) platform account setup and media placement; (iii) production of advertising creative (including video and other content); and (iv) ongoing campaign monitoring, analytics, optimization, and reporting. Revenue from the Company’s performance advertising services is recognized over time because customers simultaneously receive and consume the benefits of the Company’s performance as the Company performs the services. AI revenue The Company acquired Rafael AI on January 30, 2026. Rafael AI generates revenue from the sale of customized “data-to-AI” end-to-end software solutions directly to customers. Rafael AI is the sole legal and beneficial owner of the software and enters into contracts with its customers as a principal in the related transactions. The sale of customized “data-to-AI” end-to-end solutions is considered a distinct product as it is highly integrated, interdependent, and interrelated. The customers cannot use any component on a standalone basis to obtain economic benefits. The contracts contain a single performance obligation, which is to deliver a complete integrated software solution to the customers in exchange for the agreed consideration. The performance obligation is satisfied when the customers obtain control upon completion and delivery of all software deliverables. The customers do not simultaneously receive and consume benefits as the Company performs the contracts and do not control the software during development. Furthermore, the software has no alternative use, and Rafael AI does not have an enforceable right to payment for partial performance. The terms of pricing and payment stipulated in the contract are fixed, without variable consideration, a significant financing component, non-cash consideration, and consideration payable to customers. Upon delivery of products, Rafael AI does not accept product returns or refunds except for quality issues. Rafael AI has obligations to make refunds when the product has not been delivered. Rafael AI usually provides a one-year product warranty for delivered products. Rafael AI recognizes revenue when control of the products has been transferred to customers. The transfer of control is considered complete when products have been accepted and received by customers. Amounts received in advance are recorded as contract liabilities. Contract liabilities are recognized as revenue when the products are delivered to, and accepted by, the customers. This activity falls within the scope of ASC 606. 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. 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 flow, or disclosure. 49 In November 2024, the FASB issued ASU 2024-03, Reporting Comprehensive Income—Expense Disaggregation Disclosures, which focuses on improving disclosure about a public business entity’s expenses and addresses 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, G&A, 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 this standard and does not expect that the adoption of this guidance will have a material impact on its financial position, results of operations, or cash flow. 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 . These 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 flow. In January 2025, the FASB issued ASU 2025-01, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures . 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 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 flow. In March 2025, the FASB issued ASU 2025-02, Liabilities (Topic 405): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 122 . These 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 flow. 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 . These 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 flow. 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 . These 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 flow. 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 . These 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 flow. 50 In September 2025, the FASB issued ASU 2025-06, Intangibles—Goodwill and Other (Topic 350): Internal-Use Software . This 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 position, results of operations, or cash flow. In December 2025, FASB issued Accounting Standards Update ASU 2025-11, Interim Reporting (Topic 270): Improvements to Interim Disclosure Requirements . This 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 assessing the potential impact of this guidance on its consolidated financial statements. In April 2026, the FASB issued ASU 2026-01, Initial Measurement of Paid-in-Kind Dividends on Equity-Classified Preferred Stock. This standard amends ASC Topic 505 (Equity) to standardize the initial measurement of paid-in-kind dividends on equity-classified preferred stock, requiring such dividends to be initially measured based on the paid-in-kind dividend rate stated in the preferred stock agreement. These amendments are effective for annual reporting periods beginning after December 15, 2026, including interim periods within those annual reporting periods. Early adoption is permitted. The Company does not currently have equity-classified preferred stock with paid-in-kind dividend provisions and therefore does not expect the adoption of this guidance to have a material effect on its consolidated financial statements. In May 2026, the FASB issued ASU 2026-02, Environmental Credits and Environmental Credit Obligations . For public business entities, these amendments are effective for annual reporting periods beginning after December 15, 2027, including interim periods within those annual reporting periods. Early adoption is permitted. The Company does not currently have material environmental credits or environmental credit obligations and does not expect the adoption of this guidance to have a material effect on its consolidated financial statements. The Company has reviewed other recently issued accounting pronouncements and does not believe that the adoption of such pronouncements is expected to have a material effect on its consolidated financial statements or related disclosure. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK As a smaller reporting company, we are not required to provide this information.