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 The Company operates through 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 licensing agreements in place with various entities to use the IP in numerous countries across Asia, Europe, and Africa, generating royalties of $12.8 million in our financial year ended April 30, 2025. Recent Developments In February 2025, YYEM entered into an agency agreement to develop content for TikTok across the MENA region, leveraging Twitch-hosted live-streaming in sports, gaming, and lifestyle categories. While no upfront payments were received, the agreement positions us to monetize end-user engagement once our influencer network is developed. Revenue under this agreement will depend on performance-based conversion metrics, and as of April 30, 2025, influencer network capabilities were still nascent. We consider this development a positive step toward the diversification of our revenue streams. On January 8, 2025, we entered into a sales agreement with A.G.P./Alliance Global Partners (“A.G.P.”) under a registered Form S-3 shelf registration, enabling us to raise up to $2,213,152 through periodic sales of common stock. We may sell shares via A.G.P. as agent, or to A.G.P. as principal, and will pay a 3% commission on gross proceeds, plus limited out-of-pocket expense reimbursements. No shares had been sold through this facility as of April 30, 2025, but the agreement provides strategic flexibility for future capital raising. On June 30, 2025, we executed a securities purchase agreement to issue 20 million units (each unit comprising one share of common stock and two five-year warrants with an exercise price of $0.89), targeting gross proceeds of $4.6 million. Closing is contingent on Nasdaq listing compliance and shareholder approval. The warrants allow for cashless exercise if no effective registration is in place. This financing, if consummated, will significantly improve liquidity and capital resources through 2025 and beyond. 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; traveling 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, 2025, Compared to the Year Ended April 30, 2024 The following are the results of our operations for the year ended April 30, 2025, as compared to the year ended April 30, 2024: Year Ended April 30, Change 2025 2024 Amount % Revenue $ 12,818,182 $ 5,195,804 $ 7,622,378 147 % Cost of Revenue 2,976,923 1,176,923 1,800,000 153 % Gross Profit 9,841,259 4,018,881 5,822,378 145 % Operating Expenses: General and Administrative Expenses 3,261,402 164,376 3,097,026 1,884 % Total Operating Expenses 3,261,402 164,376 3,097,026 1,884 % Operating Income 6,659,857 3,854,505 2,725352 71 % Revenue Our revenue increased by $7.6 million, or 147.0%, from $5.2 million for the year ended April 30, 2024 to $12.8 million for the year ended April 30, 2025, driven by royalty income from new licensees following the entry into agreements, initially in the form of binding term sheets, with three licensees in January 2024. 31 Cost of Revenue Our cost of revenue increased by $1.8 million, or 153%, from $1.2 million to $3.0 million, primarily driven by higher amortization costs related to our greater level of intangible assets, many of which were acquired near the end of the financial year ended April 30, 2024. Gross profit increased by $5.8 million, or 145%, from $4.0 million to $9.8 million, driven by our higher royalty income described immediately above. General and Administrative Expenses General and administrative expenses, which mainly related to salaries, professional fees, and other general office and administrative expenses, increased by $3.1 million, from $164,000 to $3.3 million, primarily driven by the growth of our business as we increased royalty revenue and by the fact that in the year ended April 30, 2025, we began incurring costs relating to YYEM becoming an operating subsidiary of a Nasdaq-listed company. This included audit fees, legal fees, insurance premiums, and directors’ and officers’ compensation. Liquidity and Capital Resources We finance our operations primarily through cash generated from operations. We had working capital, or net current assets, of $16.0 million as of April 30, 2025, compared to $8.2 million as of April 30, 2024, an increase of approximately $7.6 million, or 93%. In comparison with a year prior, our accounts receivable as of April 30, 2025 increased by $10.0 million as we recognized royalty revenue over the course of the financial year in accordance with our recognition policy while the credit terms of our licensees permitted payment up to 90 days after the end of our financial year in order to afford them time to monetize the licensed technology. As of April 30, 2025, we had retained earnings of $6.1 million. The following is a summary of our cash flows from operating, investing, and financing activities for the years ended April 30, 2025 and 2024: Year Ended April 30, Change 2025 2024 Amount % Cash Flow (Used in)/Provided by Operating Activities $ (379,388 ) $ 2,486,255 $ (2,865,643 ) (115 )% Cash Flow (Used in)/Provided by Financing Activities $ 394,781 $ (2,446,904 ) $ 2,166,569 89 % As of April 30, 2025, we had cash and cash equivalents of $54,000, compared to $39,000 as of April 30, 2024. Net cash used in operating activities was $379,000 for the year ended April 30, 2025, compared with a net inflow of $2.5 million of cash from operating activities for the prior year, a decrease of $2.9 million in operating cash flow. A $2.0 million rise in our net income was partially offset by the combined effect of our non-cash adjustments, including a $10.0 million increase in our accounts receivable as described above, as well as sizable increases in amortization expense and income taxes payable as our business grew. Since our cash level was low in the period before payment from our licensees was due, we had no cash allocated to investing activities, neither putting cash into investments nor receiving cash from investments. The only cash flow we recorded as financing activities were two non-cash items: a $330,000 increase in the value of a guarantee given to the Company by our Chairman in respect of the value of listed shares we own; and $725,000 owed to our Chairman for amounts he paid on behalf of the Company during the year ended April 30, 2025. 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, our R&D efforts, and decisions regarding acquisitions of further patents or companies or other assets. 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. 32 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 considered various factors, including nature, historical collection experience, the age of the accounts receivable balances, 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, 2025 and 2024, 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 years ended April 30, 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 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. 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. 33 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. In November 2023, the Financial Accounting Standards Board issued Accounting Standards Update 2023-07 (“ASU 2023-07”). ASU 2023-07 requires more detailed information about reportable segments and expenses, including the requirement to disclose qualitative information about factors used to identify reportable segments and quantitative information about profit and loss measures and significant expense categories. ASU 2023-07 became effective for public companies in fiscal years beginning after December 15, 2023. The Company operates as a single reportable segment. The chief operating decision maker is the Company’s chief executive officer, who assesses performance based on total revenue, expenses, cash flows, and progress made in the Company’s ongoing development efforts. All of the Company’s long-lived assets are located in Hong Kong. The Company reports revenue by geographical location as required under the standard. The Company has analyzed ASU 2023-07 and determined that the required information is presented within the consolidated financial statements and note disclosures herein. The Company does not believe that ASU 2023-07 will have a material impact on the consolidated financial statements. 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, SG&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 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. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK As a smaller reporting company, we are not required to provide this information.