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 . 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. 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. Fundraising 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) (the “Registration Statement”) 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 AGP dated as of January 8, 2025 (the “Sales Agreement”), the amount we could raise under our ATM facility was specified to be $200 million. During the three months ended July 31, 2026, the Company sold 4,526,380 shares of common stock pursuant to the Sales Agreement, generating aggregate gross proceeds of approximately $16.3 million. As of the date of this 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 October 1, 2027. 1 Recent Developments Best Life Acquisition 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. On September 10, 2026, we paid half of the balance of the Base Consideration, with the other half due by October 28. If the Target achieves gross revenue of $10 million for the 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 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 under the Sales Agreement, raising approximately $16.3 million in gross proceeds. Reverse Stock Splits On May 18, 2026, and August 17, 2026, the Company effected reverse stock splits of its common stock at ratios of 1-for-40 and 1-for-20, respectively. The reverse stock splits did not change the par value of the Company’s common stock or the number of authorized shares. All share and per-share amounts presented in these consolidated financial statements and accompanying notes have been retrospectively adjusted to reflect the reverse stock splits for all periods presented, unless otherwise indicated. Nasdaq Deficiency On August 24, 2026, the Company received a letter from the Listing Qualifications Department of Nasdaq, indicating that the Company’s failure to file its Annual Report on Form 10-K for the period ended April 30, 2026 (the “Filing”) violated Nasdaq’s continued listing requirements under Nasdaq Listing Rule 5250(c)(1) (the “Rule”). The delay resulted from the fact that, following a significant acquisition, it had proven more time-consuming than anticipated to consolidate the financial results of the acquired business with the Company’s own. The Company had 60 calendar days to submit a plan to regain compliance and if the plan was accepted, Nasdaq could grant an exception of up to 180 calendar days from the Filing’s due date, or until January 25, 2027, to regain compliance. The Company made the Filing before the October 23, 2026, deadline for submission of the plan and expects to regain compliance with Nasdaq’s listing requirements as a result. There can be no assurance that the Company will be able to satisfy Nasdaq’s continued listing requirements, regain compliance with the Rule, and maintain compliance with other Nasdaq listing requirements. 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. 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 Three months ended July 31, 2026, compared to the three months ended July 31, 2025 The following are the results of our operations for the three-month period ended July 31, 2026, as compared to the three-month period ended July 31, 2025: Three Months Ended July 31, Change 2026 2025 Amount % Revenue $ 21,243,892 $ 3,000,000 18,243,892 608 % Cost of Revenue 15,604,610 744,231 14,860,379 1,997 % Gross Profit 5,639,282 2,255,769 3,483,513 150 % Operating Expenses: Selling and Marketing Expenses 450,995 - 450,995 N/A General and Administrative Expenses 5,485,053 764,386 4,720,667 618 % Total Operating Expenses 5,936,048 764,386 5,717,662 677 % Operating Income $ (296,766 ) $ 1,491,383 (1,778,149 ) (120 )% 2 Revenue Our revenue increased by $18.2 million, or 608%, from $3.0 million for the three-month period ended July 31, 2025 to $21.2 million for the three-month period ended July 31, 2026, driven by the recognition of approximately $15.2 million of AI services income following the acquisition of Rafael AI and the recognition of approximately $6.0 million of advertising income following the launch of our advertising business, partially offset by an approximately $3.0 million decrease in license revenue following the termination of the related license agreements. Cost of Revenue Our cost of revenue increased by $14.9 million, or 1,997%, from $0.7 million to $15.6 million, primarily due to increased costs as we grew with the addition of our advertising and new AI-related businesses during the three-month period ended July 31, 2026. In particular, Rafael AI increased its 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 increased by $3.5 million, or 150%, from $2.3 million to $5.6 million. Selling and Marketing Expenses Selling and marketing expenses, which primarily consist of salaries, office expenses, rent, utilities, and marketing fees, increased by $0.5 million, from nil for the three-month period ended July 31, 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 $4.7 million, or 618%, from $0.8 million for the three-month period ended July 31, 2025 to $5.5 million for the three-month period ended July 31, 2026, primarily driven by the growth of our business through the acquisition of Rafael AI. The increase was mainly due to the amortization of the intangible assets incurred from the acquisition of Rafael AI, including the acquired development costs and customer relationships. Liquidity and Capital Resources The following table sets forth a summary of our cash flow for the three-month periods ended July 31, 2026 and 2025, as indicated. Three Months Ended July 31, 2026 2025 Net cash provided by/(used in) operating activities $ 27,672,258 $ (1,083,809 ) Net cash used in investing activities (29,367,266 ) - Net cash provided by financing activities - 1,081,758 Net decrease in cash and cash equivalents (1,695,008 ) (2,051 ) Cash and cash equivalents, beginning of period 12,780,208 54,744 Cash and cash equivalents, end of period $ 11,085,200 $ 52,693 Operating activities Net cash provided by operating activities for the three-month period ended July 31, 2026, was $27.7 million, compared with $1.1 million for the three-month period ended July 31, 2025. Cash provided by operating activities for the three-month period ended July 31, 2026 primarily reflected a decrease of $19.0 million in digital assets and a decrease of $11.2 million in accounts receivable. These cash inflows were partially offset by a decrease of $5.0 million in contract liabilities. Cash used in operating activities for the three-month period ended July 31, 2025 primarily reflected in increase of $3.0 million in accounts receivable, partially offset by net income of $1.3 million. Investing Activities Net cash used in investing activities for the three-month period ended July 31, 2026, was $29.4 million, compared with nil for the three-month period ended July 31, 2025. The net cash used in investing activities for the three-month period ended July 31, 2026 consisted of the Company’s cash payment of $29.4 million for the acquisition of Best Life. Financing Activities Net cash provided by financing activities for the three-month period ended July 31, 2026 was nil, compared with $1.1 million for the three-month period ended July 31, 2025. The net cash provided by financing activities was primarily attributable to an increase of approximately $1.1 million in amounts due from a related party. 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. 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 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. 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 July 31 and April 30, 2026, the Company recorded an allowance for credit losses of nil and $300,000, 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 the 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. Impairment charge recognized for the three months ended July 31, 2026 and 2025 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 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’s revenue recognition process involves five steps: (i) identifying the contracts with a customer, (ii) identifying the performance obligations in the contract, (iii) determining the transaction price, (iv) allocating the transaction price to the performance obligations in the contract, and (v) recognizing 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. 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. 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 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 relevant 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 contracts are fixed, without variable consideration, a significant financing component, non-cash consideration, or 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 delivered to, and accepted 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. 5 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. 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. 6 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable.