FIEE 10-K & 10-Q changes, risk factors and insider trading
FiEE, Inc. · Nasdaq · Telephone & Telegraph Apparatus · CIK 1467761 · All filings on SEC.gov
At a glance
What changed in the latest 10-K
Risk Factors
New heading “Since completing our business transformation in 2025, our new business has generated revenue and achieved profitability, but still faces risks of sustained growth and market competition.”
New heading “Our limited operating history in our new lines of business makes it difficult to evaluate our prospects and increases the risk of investment.”
New heading “Our reliance on AI and data analytics exposes us to unique operational and ethical risks.”
New heading “Cybersecurity incidents or data breaches could disrupt our operations and harm our reputation.”
New heading “Our success depends on the continued efforts of our senior management and key technical personnel”
New heading “We are subject to stringent and evolving laws and regulations regarding data privacy and cybersecurity.”
New heading “We have identified a material weakness in our internal control over financial reporting, which resulted in our disclosure controls and procedures being ineffective as of December 31, 2025. If we fail to fully remediate this material weakness, our financial reporting could be adversely affected and investor confidence could decline.”
New heading “Our disclosure controls and procedures were not effective as of December 31, 2025, and if we are unable to maintain effective disclosure controls and procedures in the future, investors may lose confidence in our reported financial information.”
New heading “Changes in U.S. laws and regulations related to companies with connections to Hong Kong or the PRC could limit our ability to maintain our Nasdaq listing or access U.S. capital markets.”
New heading “Economic instability, inflation, global conflicts, or public health crises could adversely affect our business.”
New heading “Our financial condition, results of operations and cash flow may be adversely affected by changing economic conditions, including interest rates and inflation, and other factors beyond our control.”
New heading “Our operations could be adversely impacted by civil unrest, acts of war or terrorism, other criminal activities, infectious disease outbreaks or other unexpected events, including natural disasters, outside our control.”
New heading “We are a “smaller reporting company” and the reduced reporting requirements applicable to smaller reporting companies may make our Common Stock less attractive to investors.”
Removed heading “After the cessation of our legacy business and since transitioning to new product offerings upon the closing of the Purchase Agreement, we do not have a significant revenue generating business.”
Removed heading “We do not currently have an independent board of directors, or committees of the board of directors.”
Removed heading “Our common stock currently trades on the Pink Tier of OTC Markets and investors may have difficulty buying and selling our shares or obtaining market quotations for them.”
Removed heading “Our common stock constitutes restricted securities and is subject to limited transferability.”
Largest changes
“In recent years, the global economic market has experienced cyclical or episodic downturns, and worldwide economic conditions remain uncertain and volatile, as a result of current geopolitical conditions including conflicts in the Middle East, the ongoing Russia-Ukraine War and geopolitical tensions between China and Taiwan, instability in the U.S. …”see in full comparison
“Our business involves the collection, processing, storage, and transmission of proprietary and potentially sensitive data. We rely on internal systems and third-party service providers, including cloud-based infrastructure, to support our operations. Cybersecurity incidents, including hacking, phishing, ransomware attacks, or insider misconduct, could result in unauthorized access to, disclosure of, or loss of data. Any such incident could result in regulatory investigations, litigation, indemnity obligations, reputational damage, and significant remediation costs. …”see in full comparison
“We have identified a material weakness in our internal control over financial reporting, which resulted in our disclosure controls and procedures being ineffective as of December 31, 2025. If we fail to fully remediate this material weakness, our financial reporting could be adversely affected and investor confidence could decline.”see in full comparison
“Cybersecurity incidents or data breaches could disrupt our operations and harm our reputation.”see in full comparison
“If our remediation efforts are not successful, or if additional material weaknesses are identified in the future, we may be unable to conclude that our internal control over financial reporting is effective. This could result in additional errors in our financial statements, future restatements, delays in required filings, regulatory scrutiny, loss of investor confidence, and a decline in the market price of our Common Stock.”see in full comparison
“As a digital service provider focusing on data analytics and digital authentication, we collect, process, and store significant amounts of sensitive data. We are subject to various federal, state, and international laws, such as the GDPR and CCPA, regarding data privacy. Any failure, or perceived failure, by us to comply with these laws, or any security breach resulting in the unauthorized release of data, could result in significant fines, litigation, and a loss of customer trust, which would materially and adversely affect our business.”see in full comparison
Full comparison: every changed paragraph (64)
Since completing our business transformation in 2025, our new business has generated revenue and achieved profitability, but still faces risks of sustained growth and market competition.
After the cessation of our legacy business and since transitioning
to new product offerings upon the closing of the Purchase Agreement, we do not have a significant revenue generating business.
Prior to the cessation of
our legacy business, our principal assets, product offerings and business primarily consisted of providing consumer networking and intelligent
software services. After the closing of the transactions under the Purchase Agreement on February 18, 2025,2025 SPA, we have transitioned to becoming
a digital service providerprovider, and our current business operations focus on integrating artificial intelligenceAI and data analytics into content
creation and brand management. However,In as2025, we arecompleted our strategic transformation from a legacy networking hardware business to a digital service provider. As of the end of 2025, we completely ceased our legacy operations, with our current business focused on three core areas: digital content services, software development services, and digital authentication services. In 2025, we successfully launched our new business, generating service fees of $6.2 million, and achieving profitability. However, our new business is still in the early stages of development and faces risks such as intensified market competition, rising customer acquisition costs, and accelerated technological iteration. There can be no assurance that we will be able to maintain our newcurrent growth rate and profitability or that our current business offeringsmodel aswill ofprove April 10, 2025, we have
had limited operations and have received limited revenue from our operations. As a result, it mayto be difficultsustainable for an investor to make
a determination as toover the possiblelong success or failure of our business.term.
Our limited operating history in our new lines of business makes it difficult to evaluate our prospects and increases the risk of investment.
We have a limited operating history in our current digital services business. Although we generated revenue and achieved profitability in 2025, our historical results in our legacy business are not indicative of our future performance. Investors should consider our prospects in light of the risks and uncertainties frequently encountered by companies in new and rapidly evolving markets, including risks related to customer adoption, pricing models, technological change, and competitive dynamics. If our assumptions regarding market demand or our growth strategy prove incorrect, our business, financial condition and results of operations could be materially adversely affected.
We may fail to successfully execute our
business plan.plan successfully.
Our shareholdersstockholders may lose
their investment if we fail to execute our business plan.plan successfully. Our prospects must be considered in light of the certain risks and uncertainties,
including but not limited to, competitioncompetition, andchanges thein client preferences, cybersecurity risks, our ability to attract and retain experiencedqualified personnelpersonnel, and general economic conditions. We cannot guarantee
that we will be successful in executing our business plan. If we fail to successfully execute our business plan,plan successfully, our shareholdersstockholders may
lose their entire investment.
The Company may suffer from a lack of availability of additional funds.
We expect to have ongoing
needs for working capital in order to fund operations and to continue to expand our operations. To that end, we willmay be required to
raise additional funds through equity or debt financing. However, there can be no assurance that we will be successful in securing
additional capital on favorable terms, if at all. If we are successful, whether the terms are favorable or unfavorable, there is a
potential that we will fail to comply with the terms of such financing, which could result in severe liability for our Company. If
we are unsuccessful, we may need to (a) initiate cost reductions; (b) forego business development opportunities; (c) seek extensions
of time to fund liabilities,liabilities; or (d) seek protection from creditors. In addition, any future sale of our equity securities would
dilute our existing shareholdersstockholders and could be at prices substantially below prices at which our shares currently
trade. Our inability to raise capital could require us to significantly curtail or terminate our operations altogether. We may seek
to increase our cash reserves through the sale of additional equity or debt securities. The sale of convertible debt securities or
additional equity securities could result in additional and potentially substantial dilution to our shareholders.stockholders. The incurrence of
indebtedness would result in increased debt service obligations and could result in operating and financing covenants that would
restrict our operations and liquidity. In addition, our ability to obtain additional capital on acceptable terms is subject to a
variety of uncertainties.
In addition, if we are unable
to generate adequate cash from operations, and if we are unable to find sources of funding, it may be necessary for us to sell all or
a portion of our assets, enter into a business combination, or reduce or eliminate operations. These possibilities, to the extent available,
may be on terms that result in significant dilution to our shareholdersstockholders or that result in our shareholdersstockholders losing all of their investment
in us.
Our reliance on AI and data analytics exposes us to unique operational and ethical risks.
Our current business model focuses on integrating AI into content creation and brand management. AI technologies are complex and rapidly evolving. We may face risks related to biased algorithms, “hallucinations” in AI-generated content, or the inadvertent use of intellectual property in our training models. If our AI solutions produce inaccurate, offensive, or infringing content, our reputation could be severely damaged, and we could be subject to legal liability. Furthermore, as AI regulations emerge globally, we may incur significant costs to ensure compliance with new laws governing AI transparency and accountability.
Cybersecurity incidents or data breaches could disrupt our operations and harm our reputation.
Our business involves the collection, processing, storage, and transmission of proprietary and potentially sensitive data. We rely on internal systems and third-party service providers, including cloud-based infrastructure, to support our operations. Cybersecurity incidents, including hacking, phishing, ransomware attacks, or insider misconduct, could result in unauthorized access to, disclosure of, or loss of data. Any such incident could result in regulatory investigations, litigation, indemnity obligations, reputational damage, and significant remediation costs. In addition, increased regulatory scrutiny regarding data privacy and cybersecurity may result in additional compliance costs. A significant cybersecurity breach could materially adversely affect our business, financial condition, and results of operations.
Our growth strategy will place significant demands on our management
and financial, administrative and other resources. Operating results will depend substantially on the ability of our officers and key
employees to manage changing business conditions and to implement and improve our financial, administrative and other resources. If we
are unable to respond to and manage changing business conditions, or the scale of itsour operations, then the quality of our services, our
ability to retain key personnel, and our business could be harmed.
Our success depends on the continued efforts of our senior management and key technical personnel
Our success depends on the continued service of our senior management, as well as the continued contributions of key technical personnel supporting our MCN operations, AI-driven content creation, and blockchain-based digital authentication. As we operate at the forefront of next-generation digital services, the demand for qualified professionals with specialized skills in these emerging fields is exceptionally high, and competition for such talent is intense. We invest significant resources in recruiting and training our employees, and the loss of one or more of our executive officers or key technical personnel could delay the development of new offerings, impair our ability to respond to technological advancements, and materially and adversely affect our business, financial condition, and results of operations.
We are subject to stringent and evolving laws and regulations regarding data privacy and cybersecurity.
As a digital service provider focusing on data analytics and digital authentication, we collect, process, and store significant amounts of sensitive data. We are subject to various federal, state, and international laws, such as the GDPR and CCPA, regarding data privacy. Any failure, or perceived failure, by us to comply with these laws, or any security breach resulting in the unauthorized release of data, could result in significant fines, litigation, and a loss of customer trust, which would materially and adversely affect our business.
We do not currently have an independent
board of directors, or committees of the board of directors.
Our board of directors currently
consists of one sole director, our former Chief Executive Officer, David Lazar, and we have determined that he is not considered “independent”
under the definition set forth in the listing standards of the Nasdaq. We do not have a board of directors that consists of a majority
of independent directors. Nor have we established committees of the board of directors. However, we plan to establish an independent audit
committee, compensation committee and nomination committee pursuant to the Nasdaq listing standards in connection with seeking re-listing
on the Nasdaq.
We are required to comply with various regulatory and reporting requirements, including those required by the SEC. Complying with these reporting and other regulatory requirements areis time-consuming and expensive and could have a negative effect on our business, results of operations and financial condition.
Rules adopted by the SEC pursuant to Section 404 of the Sarbanes-Oxley Act require an annual assessment of internal control over financial reporting, and for certain issuers an attestation of this assessment by the issuer’s independent registered public accounting firm. The standards that must be met for management to assess the internal control over financial reporting as effective are evolving and complex, and require significant documentation, testing, and possible remediation to meet the detailed standards. We expect to incur significant expenses and to devote resources to compliance regarding Section 404 complianceof the Sarbanes-Oxley Act on an ongoing basis. It is difficult for us to predict how long it will take or how costly it will be to complete the assessment of the effectiveness of our internal control over financial reporting for each year and to remediate any deficiencies in our internal control over financial reporting. As a result, we may not be able to complete the assessment and remediation process on a timely basis. InWe thehave eventidentified thata wematerial determineweakness thatin our internal control over financial reportingreporting, isas notdescribed elsewhere in this Annual Report. Although we are implementing a remediation plan, there can be no assurance that our remediation efforts will be successful. If we are unable to maintain effective asinternal definedcontrol underover Sectionfinancial 404,reporting, weinvestors cannotmay predictlose howconfidence regulatorsin willthe reactaccuracy orand howcompleteness of our financial reports, which could materially adversely affect the market pricesprice of our securitiesCommon will be affected; however, we believe that there is a risk that investor confidence and the market value of our securities may be negatively affected.Stock.
We have identified a material weakness in our internal control over financial reporting, which resulted in our disclosure controls and procedures being ineffective as of December 31, 2025. If we fail to fully remediate this material weakness, our financial reporting could be adversely affected and investor confidence could decline.
In the course of preparing our financial statements for the quarter ended June 30, 2025, management identified a material weakness in our internal control over financial reporting due to insufficient accounting staffing during the Company’s restructuring and new business launch. During the first half of 2025, we did not maintain a sufficient complement of personnel with an appropriate degree of knowledge and experience to fulfill internal control and financial reporting responsibilities. This resulted in reduced review capabilities and prior-period errors, which have since been corrected.
As a result of this material weakness, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of December 31, 2025. Although we have taken steps to remediate the material weakness, including hiring additional qualified accounting personnel with SEC expertise, enhancing review and approval procedures, providing additional training, and implementing ongoing monitoring processes, the material weakness will not be considered remediated until the enhanced controls operate for a sufficient period of time and management has concluded, through testing, that the controls are effective.
If our remediation efforts are not successful, or if additional material weaknesses are identified in the future, we may be unable to conclude that our internal control over financial reporting is effective. This could result in additional errors in our financial statements, future restatements, delays in required filings, regulatory scrutiny, loss of investor confidence, and a decline in the market price of our Common Stock.
Our disclosure controls and procedures were not effective as of December 31, 2025, and if we are unable to maintain effective disclosure controls and procedures in the future, investors may lose confidence in our reported financial information.
As disclosed in this Annual Report, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of December 31, 2025 due to the material weakness in internal control over financial reporting described above. Although we are actively implementing remediation measures, there can be no assurance that these efforts will be successful or that additional deficiencies will not be identified.
Effective disclosure controls and procedures are necessary to ensure that information required to be disclosed in our SEC reports is recorded, processed, summarized, and reported within required time periods. Any failure to maintain effective disclosure controls could result in late filings, inaccurate reporting, regulatory action, or harm to our reputation, which could materially adversely affect our business and the market price of our Common Stock.
Changes in U.S. laws and regulations related to companies with connections to Hong Kong or the PRC could limit our ability to maintain our Nasdaq listing or access U.S. capital markets.
U.S. regulatory authorities, including the SEC and the Public Company Accounting Oversight Board (“PCAOB”), have adopted rules that increase disclosure requirements and regulatory scrutiny of U.S.-listed companies with operations or affiliations in Hong Kong or the PRC. Although we are currently compliant with applicable Nasdaq listing requirements and U.S. securities laws, future legislative or regulatory actions—such as expanded audit inspection requirements, data security reviews, or restrictions under the Holding Foreign Companies Accountable Act—could impose additional compliance burdens or create uncertainty regarding our continued eligibility to list our securities on a U.S. exchange.
If U.S. regulators are unable to inspect or investigate our auditors or operations to their satisfaction, or if future rules impose additional restrictions on companies with international ties, our Common Stock could be subject to trading prohibitions or delisting, which would materially and adversely affect investors.
Economic instability, inflation, global conflicts, or public health crises could adversely affect our business.
Global economic uncertainty, inflationary pressures, rising interest rates, armed conflicts, trade disputes, and public health emergencies could negatively impact customer spending, capital markets activity, and overall business confidence. These macroeconomic and geopolitical conditions may reduce demand for our services, increase our operating costs, disrupt supply chains or third-party service providers, and limit our access to financing. Any prolonged downturn in global or regional economic conditions could materially adversely affect our business, financial condition, and results of operations.
Our financial condition, results of operations and cash flow may be adversely affected by changing economic conditions, including interest rates and inflation, and other factors beyond our control.
In recent years, the global economic market has experienced cyclical or episodic downturns, and worldwide economic conditions remain uncertain and volatile, as a result of current geopolitical conditions including conflicts in the Middle East, the ongoing Russia-Ukraine War and geopolitical tensions between China and Taiwan, instability in the U.S. and global banking systems, a high inflation environment, the imposition of tariffs or other trade barriers and the risk of retaliatory actions or prolonged trade conflict, the downgrading of the U.S.’s credit rating and the possibility of an economic slowdown. A decline in economic conditions, such as a recession, an economic downturn, and/or inflationary conditions in our markets, can adversely and negatively impact our customers and potential customers in a manner that could adversely affect our financial condition, results of operations and cash flow.
Our operations could be adversely impacted by civil unrest, acts of war or terrorism, other criminal activities, infectious disease outbreaks or other unexpected events, including natural disasters, outside our control.
Our operations are always subject to adverse impacts resulting from civil unrest, acts of war, hostilities or acts of terrorism or other criminal activities. Such events may result in a temporary decline in the number of customers who seek our services or in our employees’ ability to perform their job duties. In addition, such events may temporarily interrupt our ability to provide our services. The occurrence of any such event and/or a disruption of our operations as a result may adversely affect our financial condition, results of operations and cash flow.
We have notpreviously beenfailed into compliancecomply with the
Nasdaq’s requirements for continued listing requirements, and as a resultresult, our commonCommon stockStock has beenwas suspended from trading on theNasdaq. Nasdaq,
Although we have resolved these issues and resumed trading, we may face delisting risks in the future it may be delisted from trading on the Nasdaq,future, which has had and will continue to have a material effect on us and
our stockholders.
We previously faced Nasdaq delisting risk but have resolved all deficiencies and resumed trading. From June 2024 to May 2025, we faced the risk of delisting from Nasdaq. In April 2025, we appointed independent directors and established board committees, resolving governance deficiencies. On May 29, 2025, the Panel determined that the Company is in compliance with listing rules, and our Common Stock resumed trading on Nasdaq on June 2, 2025, under the symbol “FIEE.” As of December 31, 2025, we have satisfied all applicable Nasdaq continued listing requirements.
However, a Nasdaq “Panel Monitor” has been implemented under Nasdaq Listing Rule 5815(d)(4)(A) for a period of one year from May 29, 2025, which will expire on May 29, 2026. During this period, if the Company becomes deficient with respect to any Nasdaq continued listing requirement, it will not have the opportunity to submit a compliance plan and may face delisting proceedings. There can be no assurance that we will be able to continuously satisfy all Nasdaq listing requirements in the future. If our Common Stock were to be delisted, the liquidity and market price of our securities could be materially adversely affected, and investors may find it more difficult to buy or sell our Common Stock.
We currently do not meet the
Nasdaq’s Stockholders’ Equity Requirement and are suspended from trading on the Nasdaq. Additionally, the Nasdaq, in its letter
to us on April 7, 2025, also raised the Additional Deficiencies that we failed to comply with the Nasdaq’s shareholder approval
requirements pursuant to the Nasdaq Listing Rule 5635 (b), (c) and (d) for the closing of the transactions under the Purchase Agreement,
and that we do not currently comply with the Nasdaq’s majority independent board, independent audit committee, compensation committee
and nomination committee requirements as set forth in the Nasdaq Listing Rule 5605(b)(1), 5605(c)(2), 5605(d)(2) and 5605(e), respectively.
There can be no assurance
whether or when the suspension of trading on the Nasdaq will be lifted. If our common stock is delisted, there can be no assurance
whether or when it would again be listed for trading on the Nasdaq or any other exchange. If our common stock is delisted, the
market price of our shares will likely decline further and become more volatile, and our stockholders may find that their ability to
trade in our stock will be adversely affected. Furthermore, institutions whose charters do not allow them to hold securities in
unlisted companies might sell our shares, which could have a further adverse effect on the price of our stock. In addition, our
ability to hire and retain key personnel and employees may be adversely affected by volatility or reductions in the price of our
common stock, since these employees are generally granted equity-based awards. We have previously experienced and may continue to
experience employee attrition and difficulty attracting talent as a result of these issues. We may not be successful in attracting,
integrating, or retaining qualified personnel to fulfill our current or future needs, nor may we be successful in keeping the
qualified personnel we currently have.
Our common stock currently trades on the Pink Tier of OTC Markets and investors may have difficulty buying and selling our shares or obtaining market quotations for them.
Our common stock currently trades on the Pink Tier of OTC Market Group
LLC’s Marketplace. The Company plans to update its symbol, pending FINRA’s update of our name in its records. The OTC Market
is a network of security dealers who buy and sell stock. The dealers are connected by a computer network that provides information on
current “bids” and “asks,” as well as volume information. The trading of securities on the OTC Pink is often sporadic
and investors may have difficulty buying and selling our shares or obtaining market quotations for them, which may have a negative effect
on the market price of our common stock.
A large portion of our commonCommon stockStock is controlled by a small
number of shareholders.stockholders.
A large portion of our common
stockCommon Stock is held by a small number of shareholders,stockholders, including shares held by Youxin Consulting Limited, a Hong Kong company wholly controlled
by our Chief Executive Officer, Li Wai Chung, and shares held by our Chief Financial Officer, Cao Yu, Hu Bin, one of the three purchasers
under the Purchase Agreement, and DavidElements Lazar,Corporate ourServices current sole director.Limited. As a result, these shareholdersstockholders are able to influence the outcome
of shareholderstockholder votes on various matters, including the election of directors and extraordinary corporate transactions including business
combinations.
Furthermore, any additional equity financing or purchases of additional
shares of our commonCommon stockStock from these shareholdersstockholders may further reduce the public float and liquidity of our commonCommon stockStock which can in
turn affect the market price of our commonCommon stock.Stock.
The interests of our large stockholders may differ from or conflict with the interests of our other stockholders. In addition, our large stockholders are not subject to any contractual restrictions on their ability to acquire additional shares of our Common Stock. This concentration of stock ownership may adversely affect the trading price for our Common Stock to the extent that investors perceive disadvantages in significant ownership of or control over the affairs of the Company.
The sale of a substantial number of shares of our commonCommon stock,Stock, or
anticipation of such sales, could make it more difficult for us to sell equity or equity-related securities in the future at a time and
at a price that we might otherwise wish. Further, if we do sell or issue more commonCommon stock,Stock, any investors’ investment in us will
be diluted. Dilution is the difference between what you pay for your stock and the net tangible book value per share immediately after
the additional shares are sold by us. If dilution occurs, any investment in our commonc stockCommon Stock could seriously decline in value.
Our common stock constitutes restricted securities and is subject to limited transferability.
All of our common stock shares, should be considered a long-term, illiquid investment. In addition, our common stock, is not registered under any state securities laws that would permit their transfer. Because of these restrictions and the absence of an active trading market for our securities, a stockholder will likely be unable to liquidate an investment even though other personal financial circumstances would dictate such liquidation.
The stock market from time to time has experienced extreme price and volume fluctuations, which have particularly affected the market prices for early stageearly-stage companies and which often have been unrelated to the operating performance of the companies. These broad market fluctuations may adversely affect the market price of our stock if a trading market for our stock ever develops. If our shareholdersstockholders sell substantial amounts of their stock in the public market, the price of our stock could fall. These sales also might make it more difficult for us to sell equity, or equity-related securities, in the future at a price we deem appropriate.
In order to approve a person’s account for transactions in penny stocks, the broker or dealer must:
The market price for our commonCommon stockStock is particularly volatile which could lead to wide fluctuations in our share price. You may be unable to sell your commonCommon stock sharesStock at or above your purchase price, or at all, which may result in substantial losses to you.
The market for our commonCommon stockStock is characterized by significant price volatility when compared to seasoned issuers, and we expect that our share price will continue to be more volatile than that of a seasoned issuer for the indefinite future. As a consequence of this enhanced risk, more risk-adverserisk-averse investors may, under the fear of losing all or most of their investment in the event of negative news or lack of progress, be more inclined to sell their shares on the market more quickly and at greater discounts than would be the case with the stock of a seasoned issuer. Many of these factors are beyond our control and may decrease the market price of our commonCommon stockStock regardless of our operating performance. We cannot make any predictions or projections as to what the prevailing market price for our commonCommon stock sharesStock will be at any time, or as to what effect the sale of shares or the availability of commonCommon stock sharesStock for sale at any time will have on the prevailing market price.
Investors’ interests in the Company will be diluted and investors may suffer dilution in their net book value per share when we issue additional shares. We are authorized to issue 60,000,000 shares of commonCommon stock.Stock. We anticipate that alla orsubstantial at least some or potentially allportion of our future funding, if any, will be in the form of equity financing from the sale of our commonCommon stock.Stock. If we do sell or issue more commonCommon stock,Stock, any investors’ investment in the Company will be diluted. Dilution is the difference between what you pay for your stock and the net tangible book value per share immediately after the additional shares are sold by us. If dilution occurs, any investment in the Company’s commonCommon stockStock could seriously decline in value.
The Financial Industry Regulatory Authority (“FINRA”) sales practice requirements may also limit a stockholder’s ability to buy and sell our stock.
We have never declared or paid any cash dividends on our stock and do not intend to pay any cash dividends in the foreseeable future. We anticipate that we will retain all of our future earnings for use in the development of our business and for general corporate purposes. Any determination to pay dividends in the future will be at the discretion of our board of directors.Board.
Management's Discussion & Analysis (MD&A)
New heading “Key Factors Affecting Our Performance”
New heading “Income Tax Expense (Benefit)”
New heading “Cash Flows from Financing Activities.”
New heading “Revenue Recognition”
New heading “Revenues from SaaS service before the end of 2024”
New heading “Revenues from SaaS service- MCN Digital Service in 2025”
New heading “Revenues from Software Service in 2025”
New heading “Revenues from Digital Authentication Service in 2025”
Largest changes
“Gross margin increased in fiscal 2025 compared to the prior fiscal year, primarily due to a notable turnaround in the Company’s profitability since the third quarter of fiscal 2025. The first half of fiscal 2025 was characterized by an initial investment and strategic positioning phase, with the implementation of increased operational capacity and a successful diversification into new, higher-margin service lines commencing in July 2025. …”see in full comparison
“The Company’s operations have historically been financed through the issuance of common stock and preferred stock. Since inception, the Company has incurred significant losses and negative cash flows from operation and an accumulated deficit of $95.6 million. The Company began generating operating profit in the fourth quarter of 2025. During the year ended December 31, 2025, the Company reported a net income of $1.1 million, a positive working capital of $2.4 million. As of December 31, 2025, we had cash of $3.1 million as compared to $30 thousand on December 31, 2024. …”see in full comparison
“The SaaS was offered over a defined contract period, generally one year. These services were available as an on-demand application over the defined term. The agreements included service offerings, which deliver applications and technologies via cloud-based deployment models that we develop functionality for, provide unspecified updates and enhancements for, and host, manage, provide upgrades and support for the customers’ access by entering into solution agreements for a stated period. …”see in full comparison
Full comparison: every changed paragraph (98)
The following discussion of our financial condition and results of operations should be read in conjunction with the financial statements and related notes included in this Annual Report on Form 10-K.Report. This discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties including those discussed under Part I, Item 1A, “Risk Factors.” These risks and uncertainties may cause actual results to differ materially from those discussed in the forward-looking statements.
We historically delivered comprehensive WiFi/Software as a Service platform to make everyone’s connected home safe and supportive for life and work. We continue to grow and expand our SaaS operations as a digital service provider focused on integrating AI and data analytics into content creation and brand management. In addition to our SaaS solutions, we now also offer customized software development services and digital authentication services.
As part of our ongoing strategic initiatives, we are actively planning to develop and integrate blockchain technology into our operations in the future. Through the acquisition of HGK, we have successfully applied blockchain technology to our digital authentication services. This advancement is aimed at enhancing the security, transparency, and efficiency of our services and systems.
In line with our growth strategy, we are also targeting potential acquisitions in key sectors such as AI, hardware, and the IoT. The acquisitions completed in 2025 have enabled us to strengthen our technological capabilities and expand our market presence. These strategic initiatives reflect our commitment to innovation and expansion, positioning us for long-term growth and success in emerging industries.
Additionally, we are exploring entry into the MCN business. Our goal is to serve as a bridge between influencers or content creators and the global market, facilitating valuable connections and expanding our reach in this rapidly evolving digital space.
These strategic initiatives reflect our commitment to innovation and expansion, positioning us for long-term growth and success in emerging industries.
Key Factors Affecting Our Performance
Generally, our gross margin depends on a number of factors, including the type of service and customer category. Digital content services tend to have higher gross margins but require ongoing investments; software development services have gross margins that depend on project complexity; digital authentication services, leveraging AI and blockchain technologies, have high gross margin potential.
Our future growth is largely dependent on our ability to acquire new customers, which is crucial for expanding our SaaS - MCN digital services, software services, and digital authentication services. This will rely on the effectiveness of our marketing and sales efforts to reach teams and organizations across diverse industries. The success of our growth strategy, as well as our future prospects, hinges on our ability to attract and retain new customers. While we see a substantial market opportunity in the MCN business, continued investment in sales and marketing, research and development, and customer support will be essential to further grow our international customer base.
In order to sustain and expand our existing customer base, we prioritize ensuring that our customers continue to derive value from our services. By building long-term, meaningful relationships, we aim to help customers leverage our services to establish stronger connections in the global marketplace. As they increasingly recognize the value we provide, we expect them to expand their usage and upgrade their service plans, driving revenue growth within our current customer base. This approach underpins our strategy to enhance both customer retention and revenue growth over time.
In our legacy business, we
historically provided consumer networking and intelligent software service, including delivering comprehensive WiFi as a service platform
to make everyone’s connected home safe and supportive for life and work.
Generally, our gross margin for a given product depended on a number of factors, including the type of customer to whom we were selling. The gross margin for products sold to retailers tended to be higher than for some of our other customers; but the sales, support, returns, and overhead costs associated with products sold to retailers also tended to be higher.
Our cash and cash equivalents balance on December 31, 2024 was $30 thousand compared to $709 thousand on December 31, 2023. On December 31, 2024, we had no outstanding borrowings. Our working capital was $(0.3) million as of December 31, 2024.
The major changes in cash and cash equivalents during fiscal 2024 was a decrease of approximately $3.2 million in accounts payable, a decrease of $0.7 million in accounts receivable, a decrease of $0.4 million in inventory, and decrease in accrued expense of $0.8 million, offset by $2.2 million in vendor forgiveness, net of asset transfers and proceeds from common stock and preferred stock of $3.5 million. In fiscal 2024, the Company also had a net loss of $4.2 million, which contributed to a decrease in cash and cash equivalents.
The Company’s ability to maintain adequate levels of liquidity depends in part on our ability to generate cash from operations and its ability to raise additional funds through equity or debt financing. The Company is evaluating options related to its liquidity. The Company will continue to monitor its costs in relation to its sales and adjust its cost structure accordingly.
In the years ended December 31, 2024 and 2023, we generated net sales of $0.6 million and $26.1 million, respectively.
Please refer to Note 2 of the Notes to the Consolidated Financial Statements, which is incorporated herein by reference.
Following is a discussion of what we view as our more significant accounting policies and estimates pertaining to the operations of the Company. As described below, management judgments and estimates must be made and used in connection with the preparation of our consolidated financial statements. We have identified areas where material differences could result in the amount and timing of our net sales, costs, and expenses for any period if we had made different judgments or used different estimates.
Revenue Recognition. We primarily sold hardware products to computer peripherals retailers, computer product distributors, OEMs, and direct to consumers and other channel partners via the Internet. The hardware products included cable modems and gateways, mobile broadband modems, wireless routers, MoCA adapters and mesh home networking devices. We also sold the Minim subscription service that enabled and secured a better-connected home using the Minim AI-driven smart home WiFi management and security platform.
The SaaS was offered over a defined contract period, generally one year. These services were available as an on-demand application over the defined term. The agreements included service offerings, which deliver applications and technologies via cloud-based deployment models that we develop functionality for, provide unspecified updates and enhancements for, and host, manage, provide upgrades and support for the customers’ access by entering into solution agreements for a stated period. The monthly fees charged to the customers were based on the number of subscribers utilizing the services each month, and the revenue recognized generally corresponded to the monthly billing amounts as the services were delivered. Customers did not have the contractual right or ability to take possession of the hosted software.
We considered each product and each service contract to be a distinct performance obligation. Revenue is recognized when a performance obligation is satisfied, which occurs when control of the promised products or services is transferred to the customer in an amount that reflects the consideration we expect to receive in exchange for those products or services. Revenue from product sales is recognized at a point in time when management has determined that control has transferred to the customer, which is generally when legal title has transferred to the customer. Revenue from SaaS contracts is recognized as the output of the service is transferred to the customer over time, typically evenly over the contract term. Revenue is recognized net of allowances for returns and any taxes collected from customers, which are subsequently remitted to governmental authorities.
Our contracts with customers often included promises to transfer multiple products and services to a customer. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment. Judgment is also required to determine the stand-alone selling price (“SSP”) for each distinct performance obligation. We used an observable price to estimate SSP for items that are sold separately. In instances where SSP is not directly observable, such as when we do not sell the product or service separately, we determined the SSP using information that may include market conditions and other observable inputs.
Product Returns. Products are returned by retail stores and distributors for inventory balancing and warranty repair or replacements. Analyses of actual returned product are compared to analyses of the product return estimates. We have concluded that the process of estimating the return reserve represents a fair measure with which to adjust revenue. Returned goods are variable and under ASC Topic 606, Revenue from Contracts with Customers, are estimated and recognized as a reduction of revenue as performance obligations are satisfied (e.g., upon shipment of goods). Under ASC Topic 606, the Company monitors pending authorized returns of goods and, if deemed appropriate, records the right of return asset accordingly.
Inventory Valuation and Cost of Goods Sold. Inventory is valued at the lower of cost, determined by the first-in, first-out method, or its net realizable value. We reviewed inventories for obsolete and slow-moving products and made provisions based on our estimate of the probability that the material will not be consumed or that it will be sold below cost. Additionally, material product certification costs on new products were capitalized and amortized over the expected period of value of the respective products.
Valuation of Deferred Tax Assets. We estimate our income tax expense and deferred income tax position. This process involves the estimation of our actual current tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included in our balance sheet. We then assess the likelihood that our deferred tax assets will be recovered from future taxable income. To the extent we believe that recovery is not likely, we establish a valuation allowance. Changes in the valuation allowance are reflected in the statement of operations.
Significant management judgment is required in determining our provision for income taxes and any valuation allowances. We have recorded a 100% valuation allowance against our deferred income tax assets. It is management’s estimate that, after considering all available objective evidence, historical and prospective, with greater weight given to historical evidence, it is more likely than not that these assets will not be realized. If we establish a record of continuing profitability, at some point we will be required to reduce the valuation allowance and recognize an equal income tax benefit which will increase net income in that period.
The following table sets forth certain financial data derived from our consolidated statements of operations for the years ended December 31, 20242025 and 20232024 presented in absolute dollars and as a percentage of net sales,revenues, with dollars and percentage change year over year. There can be no assurance that the current trend will continue in future periods.
Revenues
Our total revenues increased year-over-year by $5.6 million or 867.9%. The increase in revenues primarily reflects the Company’s strategic transition from legacy hardware operations to SaaS solutions, with a new business model focusing on integrating AI and big data into content creation and brand management. Notably, during March 2025, we successfully secured our first customer orders and generated initial sales, marking a critical milestone in the strategic pivot. Our target clients are individuals or entities seeking to grow their online presence as influencers or content creators.
As of December 31, 2025, we onboarded approximately 800 customers, corresponding to SaaS – MCN digital service fees totalling $6.8 million, of which $5.3 million was recognized as revenue.
Building on this momentum, we introduced customized software services in July 2025. As of December 31, 2025, we secured contracts totalling $1.2 million for customized software services, a portion of which was recognized as revenue in the current period based on the progress of completion. As of December 31, 2025, we successfully signed contracts with 13 customers for these services, with related accounts receivable amounting to $589 thousand.
Through the acquisition of HGK in November 2025, we added the ability to provide digital authentication services. As of December 31, 2025, digital authentication services generated $329 thousand in revenue, serving one corporate client and 38 individual clients. This business leverages AI and blockchain technology to provide authentication, certification, and display services for artworks, further diversifying our revenue streams.
Net Sales
Our total net sales decreased year-over-year by $25.5 million or 97.5%. The decline in net sales is directly attributable to decreased sales of Motorola branded cable modems and gateways. In both 2024 and 2023, we primarily generated our sales by selling cable modems and gateways. Sales related to SaaS offerings were $0.0 million and $1.6 million in the years ended December 31, 2024 and 2023, respectively. The decrease in other networking products of $0.6 thousand in 2024 compared to 2023 is primarily due to a reduction in MoCA products.
Cost of Goods SoldRevenue and Gross Margin
Cost of goodsrevenue soldfor the year ended December 31, 2024 consisted primarily of the following: the cost of direct labor; the cost of finished products from our third-party manufacturers; overhead costs, including purchasing, product planning, inventory control, warehousing and distribution logistics; third-party software licensing fees; inbound freight; import duties/tariffs; warranty costs associated with returned goods; write-downs for excess and obsolete inventory; amortization of certain acquired intangibles and software development costs; and costs attributable to the provision of service offerings.
Cost of revenue for the year ended December 31, 2025 consisted primarily of the following: the cost of direct labor; amortization of certain acquired intangibles and software development costs, outsourced authentication service costs, and costs attributable to the provision of service offerings.
The decreaseincrease in gross profit was attributable to lesshigher sales,revenue in 2025, largely resulting from the lack of revenue in 2024 due to the termination of the Motorola license termination.license. Our gross margin can be affected by a number of factors, including fluctuation in labor cost, foreign exchange rates, sales returns, changes in average selling prices, end-user customer rebates and other channel sales incentives, changes in our cost of goods soldrevenue due to fluctuations and increases in prices paid for components, overhead costs, inbound freight and duty/tariffs, conversion costs, and charges for excess or obsolete inventory.
The following table presents net sales, cost of goods sold,revenues and gross margin, for the periods indicated:
Gross margin increased in fiscal 2025 compared to the prior fiscal year, primarily due to a notable turnaround in the Company’s profitability since the third quarter of fiscal 2025. The first half of fiscal 2025 was characterized by an initial investment and strategic positioning phase, with the implementation of increased operational capacity and a successful diversification into new, higher-margin service lines commencing in July 2025. The improvement in gross margin was primarily contributed by the MCN digital services revenue stream, which leverage AI and other technologies to reduce reliance on human labor, resulting in significantly higher margins compared to traditional service models. As a result, the Company achieved a substantial increase in its gross margin. The benefits of this strategic shift and enhanced scale are clearly reflected in the consolidated results for fiscal 2025.
Gross profit decreased and gross margin increased in fiscal 2024 compared to the prior fiscal year, primarily due to the decline in net sales offset by inventory reserves of $1.8 million in 2023.
Selling and marketing expenses consistedconsist primarily of advertising, trade shows, corporate communications and other marketing expenses, product marketing expenses, outbound freight costs, amortization of certain intangibles, personnel expenses for sales and marketing staff, technical support expenses, and facility allocations. The following table presents sales and marketing expenses, for the periods indicated:
Sales and marketing expenses increased by $352 thousand in fiscal 2025, as compared to the prior year, primarily due to the Company’s business transformation. In 2024, the Company was in a transition period with reduced legacy operations, resulting in low sales support costs. In 2025, with the full launch of new business operations, the Company increased marketing activities and investments to promote its digital content services, software development services, and digital authentication services.
Sales and marketing expenses decreased in fiscal 2024, as compared to the prior year, primarily due to a decrease in Motorola royalty fees of $5.2 million, marketing programs of $2.1 million, personnel costs of $1.4 million, and other market support costs of $0.7 million.
General and administrative expenses increased by $1.3 million, or 61.8%, to $3.3 million for the year ended December 31, 2025, compared to $2.0 million for the year ended December 31, 2024. This increase was primarily driven by $1.1 million in non-cash warrant issuance costs recognized in the third quarter of 2025. The remaining increase was attributable to expanded business operations following our strategic transformation, including higher professional fees and personnel costs associated with launching and scaling our new digital content, software development, and digital authentication services. These increases were partially offset by continued cost discipline and operational efficiencies realized from our transition away from legacy hardware operations.
General and administrative expenses decreased $2.6 million primarily due to a decrease of $0.9 million in personnel costs, software costs of $0.9 million, $0.5 million in professional services fees, and $0.4 in other general and administrative support costs.
Research and development expenses decreased by $66 thousand in fiscal 2025, as compared to the prior year. The research and development expenses incurred in 2025 were primarily related to software subscriptions and support costs.
Research and development expenses may fluctuate depending on the timing and number of development activities and could vary significantly as a percentage of revenues, depending on actual revenues achieved in any given year.
The decrease of $3.3 million was primarily due to personnel costs of $2.3 million, $0.2 million software licenses, $0.4 million professional services fees, and $0.4 million in other research and development support costs.
Other income (expense), net was an expense of $29,881 in fiscal 2025 and income of $82 in fiscal 2024, primarily due to increased foreign currency exchange losses resulting from significantly more foreign currency transactions in 2025 as the Company expanded its operations in Hong Kong and Japan.
Income Tax Expense (Benefit)
Income tax expense (benefit) was an expense of $448,204 in fiscal 2025 and benefit of $11,216 in fiscal 2024. This significant change was primarily due to the profitability of the Company’s Hong Kong subsidiary in 2025, resulting in Hong Kong Profits Tax. In 2024, the Company was in a business transition period with losses from legacy operations, resulting in an income tax benefit.
Other income (expense), net was an expense of $82 in fiscal 2024 and expense of $385 thousand in fiscal 2023, primarily due to the Company paying in full the outstanding balance of the SVB Loan Agreement in October 2023 Income Tax Expense. We recorded minimum state income tax for a few states and tax related to our operations in Mexico, which was $11 thousand and $43 thousand in fiscal 2024 and fiscal 2023, respectively.
The Company’s operations have historically been financed through the issuance of common stock and preferred stock. Since inception, the Company has incurred significant losses and negative cash flows from operation and an accumulated deficit of $95.6 million. The Company began generating operating profit in the fourth quarter of 2025. During the year ended December 31, 2025, the Company reported a net income of $1.1 million, a positive working capital of $2.4 million. As of December 31, 2025, we had cash of $3.1 million as compared to $30 thousand on December 31, 2024. On December 31, 2025, we had no borrowings outstanding and had a working capital of $2.4 million. Previously, we have funded our operations and financing activities primarily through the sale of our preferred stock and Common Stock. Our ability to maintain adequate levels of liquidity depends in part on our ability to generate cash from operations and our ability to raise additional funds through equity or debt financing. We are evaluating options related to our liquidity and will continue to monitor our costs in relation to our sales and adjust our cost structure accordingly.
Our principal sources of liquidity are cash and cash equivalents. As of December 31, 2024, we had cash and cash equivalents of $30 thousand as compared to $709 thousand in cash and cash equivalents on December 31, 2023. On December 31, 2024, we had no outstanding borrowings and working capital of $(0.3) million. We have continued to fund our operations through proceeds of common and preferred stock.
Our historical cash outflows have primarily been associated with: (1) cash used for operating activities such as the purchase and growth of inventory, expansion of our sales and marketing and research and development infrastructure and other working capital needs; (2) expenditures related to increasing our manufacturing capacity and improving our manufacturing efficiency; (3) capital expenditures related to the acquisition of equipment; and (4) cash used to repay our debt obligations and related interest expense.expense; and (5) cash used for acquisitions. Fluctuations in our working capital due to timing differences of our cash receipts and cash disbursements also impact our cash inflows and outflows.
Our consolidated financial statements as of December 31, 20242025 were prepared under the assumption that we will continue as a going concern. The going concern assumption contemplates the realization of assets and satisfaction of liabilities in the normal course of business. However, substantial doubt exists about our ability to continue as a going concern, and we will require additional liquidity to continue operations beyond the next 12twelve months.
Cash provided by operating activities of $3.6 million during 2025 reflected our net income of $1.1 million, adjusted for non-cash expenses, consisting primarily of: $0.5 million in depreciation and amortization expense, $0.1 million in stock-based compensation expense, $1.1 million in value of warrants issued, $9 thousand in non-cash interest expense, and $7 thousand in loss on disposal of fixed assets. Uses of cash included increases in accounts receivable of $0.6 million, other receivables of $1.1 million, prepaid and other current assets of $27 thousand, and other long-term assets of $59 thousand, as well as decreases in operating lease liabilities of $51 thousand. Sources of cash included increases in accounts payable of $0.2 million, contract liabilities of $1.5 million, income tax payable of $0.4 million and accrued expenses and other current liabilities of $0.6 million.
Cash provided by operating activities of $4.9 million for 2023 reflected our net loss of $17.6 million, adjusted for non-cash expenses, consisting primarily of $0.6 million of depreciation and amortization, $0.3 million of stock-based compensation expense, and a $0.2 million provision for accounts receivable allowance. Uses of cash included a reduction in accrued expenses of $3.3 million and decrease in deferred revenue of $1.4 million. Sources of cash included a decrease of accounts receivable of $1.9 million, a decrease in inventory of $15.5 million, and decrease in prepaid expenses and other current assets of $0.3 million.
In 2025, the Company used $4.9 million in investing activities, primarily consisting of $4.7 million for acquisition of assets and $0.2 million for purchases of property, equipment and software.
What changed in the latest 10-Q
Risk Factors
There have been no material changes to the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2025, initially filed with the SEC on March 20, 2026 and amended on April 29, 2026, which includes a detailed discussion of our risk factors in Part I, “Item 1A. Risk Factors,” which discussion is hereby incorporated by reference into this Part II, Item 1A. Our Risk Factors could materially affect our business, financial position, or future results of operations. The risks described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025, are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial position, or future results of operations.
Full comparison: every changed paragraph (1)
There have
been no material changes to the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2025, initially
filed with the SEC on March 20, 2026 and amended on April 29, 2026, which includes a detailed discussion of our risk factors in
Part I, “Item 1A. Risk FactorsFactors,”, which discussion is hereby incorporated by reference into this Part II, Item 1A. Our Risk
Factors could materially affect our business, financial position, or future results of operations. The risks described in our Annual
Report on Form 10-K for the fiscal year ended December 31, 2025, are not the only risks we face. Additional risks and uncertainties
not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial position,
or future results of operations.
Management's Discussion & Analysis (MD&A)
New heading “Income Tax Expense”
Largest changes
The increase in gross profit was attributable to higher revenue in the three and six months endedsee in full comparisonMarchJune31,30, 2026. Our gross margin can be affected by a number of factors, primarily includingfluctuation in labor cost, foreign exchange rates, sales returns,changes in average sellingprices, end-user customer rebatesprice andotherforeignchannelexchangesalesrates,incentives,aschangeswell as fluctuations in our cost of revenue due tofluctuationschanges in labor costs, outsourced authentication service costs andincreasescloudinserviceprices paid for components, overhead costs, inbound freight and duty/tariffs, conversion costs, and charges for excess or obsolete inventory.costs.
“As part of our ongoing strategic initiatives, we have integrated blockchain technology into our digital authentication services through the acquisition of HGK, enhancing the security, transparency, and efficiency of our services and systems. Through our acquisition of Yinlian Culture and its VIE, Maltose Culture, we have further expanded into the AI music business, combining music content creation and distribution with AI capabilities to build an advanced AI music ecosystem.”see in full comparison
“Forecasting gross margin percentages is difficult, and there are several risks related to our ability to maintain or improve our current gross margin levels. Our cost of revenue, as a percentage of revenue, can vary significantly based upon factors such as uncertainties surrounding revenue, including future pricing and/or potential discounts as a result of the economy, competition, and the timing of sales.”see in full comparison
Comparison of the three and six months endedsee in full comparisonMarchJune31,30, 2026 to the three and six months endedMarchJune31,30, 2025
Cash Flows from Operating Activities. Cash provided by operating activities ofsee in full comparison$67$90 thousand during thethreesix months endedMarchJune31,30, 2026 reflected our net income of$352$2.5thousand,million, adjusted for non-cash expenses, consisting primarily of$344$696 thousand in depreciation and amortizationexpense.expense and $310 thousand in stock-based compensation. Sources of cash were primarily from decreases in other receivables of $1.1million andmillion, increases in accounts payable of$106$670 thousand, increases in income tax payable of $410 thousand and increases in accrued expenses and other current liabilities of $351 thousand. Uses of cash were primarily from increases in accounts receivable of$1.0$5.0 million, decreases in contract liabilities of$829$1.2thousand,million. The increase in accounts receivable was partially driven by the introduction of post-paid arrangements for MCN digital services anddecreasesdigital authentication services during the second quarter of 2026, under which customers are granted payment terms of 90 days from the contract signing date. Unlike prepaid arrangements that provide upfront cash inflows, post-paid arrangements result inincomecashtaxcollectionspayablesubsequent to service delivery, which impacted the timing of$116operatingthousand.cash flows during the period. The Company continues to monitor the collectability of receivables arising from post-paid arrangements.
Full comparison: every changed paragraph (48)
The
following discussion of our financial condition and results of operations should be read in conjunction with the unaudited condensed
consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q and with our audited
consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025. This discussion
contains forward-looking statements within the meaning of Section 27A of the Securities Act,Act of 1933, as amended (the “Securities
Act”), Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Private Securities
Litigation Reform Act of 1995, and involves numerous risks and uncertainties. Forward-looking statements may include, among others, statements
relating to our ability to predict revenue and reduce costs related to our products or service offerings, our ability to forecast product
and services sales volumes, the sufficiency of our capital resources and the availability of debt and equity financing, the continuing
impact of uncertain global economic conditions on the demand for our products and services, our ability to maintain and scale adequate
and secure software platform infrastructure, the impact of competition on demand for our products and services, our competitive position,
our future financial position and results of operations, and our ability to grow in new and existing markets. Forward-looking statements
can be identified by the fact that they do not relate strictly to historical or current facts and generally contain words such as “believes,”
“expects,” “may,” “will,” “should,” “seeks,” “intends,” “plans,”
“strives,” “goal,” “estimates,” “forecasts,” “projects” or “anticipates”
and the negative of these terms or similar expressions. Our forward-looking statements are subject to risks and uncertainties, which
may cause actual results to differ materially from those projected or implied by the forward-looking statement, due to reasons including,
but not limited to, competition; the effectiveness of our strategies; general economic conditions, including any impact from inflation;
current geopolitical conditions including conflicts in the Middle East, the ongoing Russia-Ukraine War and geopolitical tensions between
China and Taiwan; our ability to successfully implement our business strategy; the success of our initiatives to increase sales; changes
in commodity, energy, labor and other costs; our ability to attract and retain management and employees; price and availability of commodities;
consumer confidence and spending patterns; and weather conditions. Forward-looking statements are based on current expectations and assumptions
and currently available data and are neither predictions nor guarantees of future events or performance. You should not place undue reliance
on forward-looking statements, which speak only as of the date hereof. See “Risk Factors” and “Special Note Regarding
Forward-Looking Statements” included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025, for a
discussion of factors that could cause our actual results to differ from those expressed or implied by forward-looking statements. We
undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise,
except as otherwise required by law.
We historically delivered comprehensive WiFi/SaaS platform to make everyone’s connected home safe and supportive for life and work. We continue to grow and expand our SaaS operations as a digital service provider focused on integrating AI and data analytics into content creation and brand management. In addition to our SaaS solutions, we now also offer customized software development services andservices, digital authentication services, and music services.
As part of our ongoing strategic initiatives, we have integrated blockchain technology into our digital authentication services through the acquisition of HGK, enhancing the security, transparency, and efficiency of our services and systems. Through our acquisition of Yinlian Culture and its VIE, Maltose Culture, we have further expanded into the AI music business, combining music content creation and distribution with AI capabilities to build an advanced AI music ecosystem.
We also provide digital authentication services that combine advanced imaging technology, AI-driven analysis, and expert validation to deliver reliable verification and certification, supporting clients in meeting relevant compliance and risk management requirements.
As part of our ongoing strategic initiatives, we are actively planning to develop and integrate blockchain technology into our operations in the future. Through the acquisition of HGK, we have successfully applied blockchain technology to our digital authentication services. This advancement is aimed at enhancing the security, transparency, and efficiency of our services and systems.
In line with our growth strategy, we are also targeting potential acquisitions in key sectors such as AI, hardware, and the Internet of Things (IoT). The acquisitions completed in 2025 and 2026 have enabled us to strengthen our technological capabilities and expand our market presence.
Additionally, we arehave exploring entryexpanded into the MCN business.business, Ouroffering goalcontent isproduction toand serveaccount management services across key platforms, serving as a bridge between influencers or content creators and the global market, and facilitating valuable connections and expanding our reach in this rapidly evolving digital space. In the future, we plan to further expand our service offerings to include brokerage services to assist clients with promotional activities and enhance their international market influence.
Our future growth is largely dependent on our ability to acquire new customers, which is crucial for expanding our SaaS - MCN digital services, software services, and digital authentication services, and music services. This will rely on the effectiveness of our marketing and sales efforts to reach teams and organizations across diverse industries. The success of our growth strategy, as well as our future prospects, hinges on our ability to attract and retain new customers. While we see a substantial market opportunity in the MCN business, continued investment in sales and marketing, research and development, and customer support will be essential to further grow our international customer base.
The following table sets forth certain financial data derived from our condensed consolidated statements of operations for the three and six months ended MarchJune 31,30, 2026 and 2025, presented in absolute dollars and as a percentage of revenues,dollars, with dollars and percentage change period over period:
Comparison of the three and six months ended MarchJune 31,30, 2026 to the three and six months ended MarchJune 31,30, 2025
The following table sets forth our revenues by product and the changes in revenues for the three and six months ended MarchJune 31,30, 2026, as compared to the three and six months ended MarchJune 31,30, 2025:
Our revenues increased by $2.1$4.8 million and $6.9 million for the three and six months ended MarchJune 31,30, 20262026, compared to the three and six months ended MarchJune 31,30, 2025. The increase in revenues primarily reflects the Company’s strategic transition from legacy hardware operations to SaaS solutions, with a new business model focusing on integrating AI and big data into content creation and brand management.management, and the successful expansion into multiple new business lines, including SaaS - MCN digital services, software services, digital authentication services, and other services, most of which experienced rapid growth following their launch. Notably, during March 2025, we successfully secured our first customer orders and generated initial sales, marking a critical milestone in the strategic pivot. Our target clients are individuals or entities seeking to grow their online presence as influencers or content creators.creators, enterprises requiring customized software solutions, art owners and institutions in need of authentication services, and participants in the music industry.
AsFor our SaaS - MCN digital services, as of MarchJune 31,30, 2026, we onboarded approximately 818939 customers, correspondingrepresenting to SaaS – MCN digitaltotal service fees totalingof $6.9$9.2 million, of which $6.4$7.9 million washas been recognized as revenue cumulatively,cumulatively. including $1.1 million recognized inDuring the threesix months ended MarchJune 31,30, 2026.2026, we added 138 new customers and recognized $2.6 million in revenue from this business.
Building on this momentum, we introduced customized software services in July 2025. As of MarchJune 31,30, 2026, we secured contracts totaling $1.5$2.9 million for software services, a$1.7 portionmillion of which was recognized as revenue in the threesix months ended MarchJune 31,30, 2026 in accordance with the relevant revenue recognition models (over time or at a point in time, as applicable). During the threesix months ended MarchJune 31,30, 2026, we added five18 new customers, bringing the total number of customers for these services to 1731 as of MarchJune 31,30, 2026. The related accounts receivable balance as of March 31, 2026 was $1.0 million.
Through the acquisition of HGK in November 2025, we added the ability to provide digital authentication services. As of MarchJune 31,30, 2026, this business had generated cumulative revenue of $768$2.9 thousand,million, including $439$2.6 thousandmillion recognized in the threesix months ended MarchJune 31,30, 2026, serving five corporate clients and 52459 individual clients in total, with related accounts receivable amounting to $0.4$2.0 million. This business leverages AI and blockchain technology to provide authentication, certification, and display services for artworks, further diversifying our revenue streams.
Cost of revenue for the three and six months ended MarchJune 31,30, 2026 consisted primarily of direct labor costs; amortization of certain acquired intangible assets and software development costs; outsourced authentication service costs; and other costs attributable to the provision of service offerings.
Cost of revenue for the three and six months ended MarchJune 31,30, 2025 consisted primarily of the cost of direct labor.labor and cloud service costs.
The increase in gross profit was attributable to higher revenue in the three and six months ended MarchJune 31,30, 2026. Our gross margin can be affected by a number of factors, primarily including fluctuation in labor cost, foreign exchange rates, sales returns, changes in average selling prices, end-user customer rebatesprice and otherforeign channelexchange salesrates, incentives,as changeswell as fluctuations in our cost of revenue due to fluctuationschanges in labor costs, outsourced authentication service costs and increasescloud inservice prices paid for components, overhead costs, inbound freight and duty/tariffs, conversion costs, and charges for excess or obsolete inventory.costs.
Gross margin increased significantly in the three and six months ended MarchJune 31,30, 2026, compared to the three and six months ended in the prior fiscal year period. In the three and six months ended MarchJune 31,30, 2025, the Company had just launched its SaaS-basedSaaS- MCN digital services in March 2025 and had not yet introduced customized software services orservices, digital authentication services,services or others, resulting in minimal revenue and negativelow gross profit.
Forecasting gross margin percentages is difficult, and there are several risks related to our ability to maintain or improve our current gross margin levels. Our cost of revenue, as a percentage of revenue, can vary significantly based upon factors such as uncertainties surrounding revenue, including future pricing and/or potential discounts as a result of the economy, competition, and the timing of sales.
Selling and marketing expenses consist primarily of business promotion and corporate publicity expenses. The following table presents salesselling and marketing expenses for the periods indicated:
SalesSelling and marketing expenses increased by $34$236 thousand and $270 thousand in the three and six months ended MarchJune 31,30, 2026, as compared to the three and six months ended inJune the30, prior fiscal year period,2025, primarily due to the Company’s business transformation.transformation and stock-based compensation expenses in connection with equity awards granted in May 2026 under the 2025 Equity Incentive Plan. For the threesix months ended MarchJune 31,30, 2026, selling and marketing expenses primarily reflected costs related to the expansion of our threefour core business lines—– SaaS- MCN digital services, software developmentservices, digital authentication services, and digital authenticationother services— – as well as corporate branding initiatives. For the three months ended March 31, 2025, the Company had just launched its new business lines and had not yet incurred any selling and marketing expenses.
For the remainder of the fiscal year 2026, we expect our selling and marketing expenses to fluctuate depending on sales levels achieved as certain expenses, such as commissions, are determined based upon revenue Forecasting selling and marketing expenses is highly dependent on expected revenue levels and could vary significantly depending on actual revenue achieved in any given quarter. Marketing expenses may also fluctuate depending upon the timing, extent and nature of marketing programs.
General and administrative expenses increased by $656 thousand, or 192.8%, to $997$334 thousand forand $991 thousand in the three and six months ended MarchJune 31,30, 2026, as compared to $340 thousand for the three and six months ended MarchJune 31,30, 2025. The increase was primarily attributable to certain non-recurring professional service fees incurred during the quarter,six months ended June 30, 2026, including legal and advisory fees related to strategic initiatives.initiatives and stock-based compensation expenses in connection with equity awards granted in May 2026 under the 2025 Equity Incentive Plan.
Research and development expenses consist primarily of personnel expenses, payments to suppliers for design services, safety and regulatory testing, product certification expenditures to qualify our products for sale into specific markets, prototypes, IT, and other consulting fees. Research and development expenses are recognized as they are incurred. Our research and development organization is focused on enhancing our ability to introduce innovative and easy-to-use products and services. The following table presents research and development expenses,expenses for the periods indicated:
Research and development expenses increased by approximately$22 $7thousand and $28 thousand in the three and six months ended MarchJune 31,30, 2026, as compared to the three and six months ended inJune the30, prior fiscal year period.2025. The increase primarily reflects ongoing enhancements and optimizations to our system during the currentsix period.months ended June 30, 2026.
Income Tax Expense
Income tax expense was $526,897 and $663,726 for the three and six months ended June 30, 2026, respectively, compared to $0 for the three and six months ended June 30, 2025. The increase in income tax expense was primarily attributable to the profitability of the Company’s Hong Kong and Singapore subsidiaries during the six months ended June 30, 2026. In the prior year period, the Company’s operations were in the early stage of business transition and had not yet generated significant taxable profits, resulting in no income tax expense for the three and six months ended June 30, 2025.
The Company’s operations have historically been primarily financed through the issuance of Common Stock and Preferred Stock. Since inception, the Company has incurred significant losses and negative cash flows from operationoperations and an accumulated deficit of $95.3$93.2 million. The Company began generating operating profit in the fourth quarter of 2025 and has continued to do so thereafterthereafter. During the threesix months ended MarchJune 31,30, 2026, the Company reported a net income of $352$2.5 thousand.million. As of MarchJune 31,30, 2026, we had cash of $4.6$5.4 million as compared to $3.1 million on December 31, 2025. On MarchJune 31,30, 2026, we had no outstanding borrowings and a positive working capital of $3.3$7.1 million. Our ability to maintain adequate levels of liquidity depends in part on our ability to generate cash from operations and our ability to raise additional funds through equity or debt financing. We are evaluating options related to our liquidity and will continue to monitor our costs in relation to our sales and adjust our cost structure accordingly.
In June 2026, we entered into the Sales Agreement with A.G.P. under which we may offer and sell up to an estimated $6,272,809 of shares of our Common Stock from time to time through an “at the market” offering program under which A.G.P. will act as sales agent. Pursuant to the Sales Agreement, we have agreed to pay A.G.P. a commission of 3.25% of the aggregate gross proceeds from any shares of Common Stock sold by A.G.P. We have no obligation to sell any shares under the Sales Agreement and may at any time suspend solicitation and offers under the Sales Agreement. During the six months ended June 30, 2026, we did not sell any shares of Common Stock pursuant to the Sales Agreement.
Our condensed consolidated financial statements as of MarchJune 31,30, 2026 were prepared under the assumption that we will continue as a going concern. The going concern assumption contemplates the realization of assets and satisfaction of liabilities in the normal course of business. However, substantial doubt exists about our ability to continue as a going concern, and we will require additional liquidity to continue operations beyond the next 12 months.
Our condensed consolidated financial statements as of MarchJune 31,30, 2026 do not include any adjustments to the carrying amounts and classification of assets, liabilities, and reported expenses that may be necessary if we were unable to continue as a going concern. If we are unable to continue as a going concern, we may have to liquidate our assets and may receive less than the value at which those assets are carried on our financial statements, and it is likely that investors will lose all or part of their investment.
Cash Flows from Operating
Activities. Cash provided by operating activities of $67$90 thousand during the threesix months ended MarchJune 31,30, 2026 reflected our
net income of $352$2.5 thousand,million, adjusted for non-cash expenses, consisting primarily of $344$696 thousand in depreciation and amortization expense.expense
and $310 thousand in stock-based compensation. Sources of cash were primarily from decreases in other receivables of $1.1 million andmillion, increases
in accounts payable of $106$670 thousand, increases in income tax payable of $410 thousand and increases in accrued expenses and other current
liabilities of $351 thousand. Uses of cash were primarily from increases in accounts receivable of $1.0$5.0 million, decreases in contract
liabilities of $829$1.2 thousand,million. The increase in accounts receivable was partially driven by the introduction of post-paid arrangements for
MCN digital services and decreasesdigital authentication services during the second quarter of 2026, under which customers are granted payment
terms of 90 days from the contract signing date. Unlike prepaid arrangements that provide upfront cash inflows, post-paid arrangements
result in incomecash taxcollections payablesubsequent to service delivery, which impacted the timing of $116operating thousand.cash flows during the period. The Company
continues to monitor the collectability of receivables arising from post-paid arrangements.
Cash usedprovided inby operating activities of $371$172 thousand during the threesix months ended MarchJune 31,30, 2025 reflected our net loss of $374$1 thousand,million, adjusted for non-cash expenses, consisting primarily of $60$91 thousand in depreciation and amortization expense. Uses of cash included aan decreaseincrease in accountsother payablereceivables of $43 thousand and other assets of $88$520 thousand. Sources of cash included decreasean increase of prepaidcontract expenses and other current assetsliabilities of $40$1.5 thousand.million.
Cash Flows from Investing Activities. During the threesix months ended MarchJune 31,30, 2026, cash usedprovided inby investing activities consisted of $0.5$877 millionthousand of cash acquired in the business acquisition of Yinlian Culture, and $510 thousand of cash used for the purchase of property.
During the threesix months ended MarchJune 31,30, 2025, the Company had no cash flows generated or used by investing activities.
Cash Flows from Financing Activities. Cash provided fromby financing activities during the threesix months ended MarchJune 31,30, 2026 consisted of gross proceeds from issuance of Common Stock of $2.0 million, partially offset by payment of deferred financing costs of $25$83 thousand.
Cash provided fromby financing activities during the threesix months ended MarchJune 31,30, 2025 primarily consisted of proceeds from the issuance of Common Stock of $4 million and the net proceeds from the issuance of a convertible note of $300 thousand.
Our capital expenditures are largely discretionary and within our control. We expect that ourthe product saleslevel and timing of our service revenues, the resultingassociated operating loss,results, as well asand the status of each of our productbusiness development programs,and technology enhancement initiatives will significantly impact our cash management decisions.
At MarchJune 31,30, 2026, we do not believe our current cash will be sufficient to fund working capital requirements, capital expenditures and operations during the next 12 months. Our ability to continue as a going concern will depend on our ability to obtain additional equity or debt financing, attain further operating efficiencies, reduce expenditures and increase revenues. Based on these factors, management determined that there is substantial doubt regarding our ability to continue as a going concern. We will continue to monitor our costs in relation to our sales and adjust accordingly.
As of MarchJune 31,30, 2026, we have U.S. federal net operating loss carry forwardscarryforwards of approximately $66.8$63.9 million available to reduce future U.S. federal taxable income. A valuation allowance has been established for the full amount of deferred tax assets recognized in our U.S. entity as management has concluded that it is more-likelymore than-notlikely than not that the benefits from such assets will not be realized. As a result, as of MarchJune 31,30, 2026 and December 31, 2025, we recorded a valuation allowance against our net deferred tax assets to the extent that such assets were recognized in our U.S. entity.
On January 30,
2026, the Company entered into the 2026 Purchase Agreement with thetwo Purchasers, pursuant to which the Company agreed to sell an aggregate
of 394,476 shares of Common Stock (the “Shares”) at an offering price of $5.07 per Share. The Company received
aggregate gross proceeds of $1,999,993 from the issuance. The sales made pursuant to the 2026 Purchase Agreement are exempt from the
registration requirements of the Securities Act of 1933, as
amended (the “Securities Act”),Act, pursuant to the exemption for transactions by an issuer not involving any public offering
under Section 4(a)(2) of the Securities Act and Rule 506 of Regulation D of the Securities Act. The Closing occurred on March 31,
2026.
In June 2026, the Company entered into the Sales Agreement with A.G.P. under which the Company may offer and sell up to an estimated $6,272,809 of shares of the Company’s Common Stock from time to time through an “at the market” offering program under which A.G.P. will act as sales agent. The Company has no obligation to sell any shares under the Sales Agreement and may at any time suspend solicitation and offers under the Sales Agreement.
The Closing occurred on March 31, 2026.
During the three months ended MarchJune 31,30, 2026, except as otherwise disclosed in this Quarterly Report on Form 10-Q, there were no material changes to our capital commitments and contractual obligations from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2025.
We did not have any material off-balance sheet arrangements as of MarchJune 31,30, 2026. See Note 67 to the accompanying condensed consolidated financial statements for additional disclosure.
See Note 2 to the accompanying condensed consolidated financial statements,statements for a full description of recent accounting standards, including the expected dates of adoption and estimated effects on the financial condition and results of operations, which are hereby incorporated by reference.
Our critical accounting policy is revenue recognition, and no critical accounting estimates were identified, as described under “Critical Accounting Policies and Estimates” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10‑K10-K for the year ended December 31, 2025. For the threesix months ended MarchJune 31,30, 2026, the Company’s critical accounting policy remains revenue recognition, and no critical accounting estimates were identified.
FIEE insider buying and selling (Form 4)
Since 2026-04-11, insiders reported open-market purchases in 0 Form 4 filings and open-market sales in 0 filings. Totals add up every open-market (code P and S) line in those filings, using the prices reported in the filings. Awards, option exercises, tax withholding and gifts are listed below but not counted.
| Trade date | Insider | Transaction | Shares | Price | Value |
|---|---|---|---|---|---|
| 2026-05-12 | Yu Cao |
Grant/award | 143,561 | — | — |
| 2026-05-12 | Chung Li Wai |
Grant/award | 143,561 | — | — |
| 2026-05-05 | Natan David |
Grant/award | 100,000 | — | — |
| 2026-05-05 | Chan Oi Fat |
Grant/award | 100,000 | — | — |
Well-known investors holding FIEE (13F)
None of the 59 investors we track reported a position in their latest 13F.