FSTJ 10-K & 10-Q changes, risk factors and insider trading

Revenues increased by $2,584,194, or approximately 15.9%, from $16,206,752 for the year ended December 31, 2024, to $18,790,946 for the year ended December 31, 2025. This growth reflects increased demand across our core service lines, including electronic equipment recycling, IT asset disposition, data destruction, and data center decommissioning. Management believes the growth in revenue was driven in part by expanding enterprise customer relationships, including projects related to the retirement of computing infrastructure associated with artificial intelligence and high-performance computing environments, as enterprises upgrade legacy data center infrastructure to support AI-optimized hardware workloads.

Revenue concentration risk remains present. For the year ended December 31, 2025, our top three customers accounted for approximately 15%, 13%, and 12% of total revenues, respectively, compared to 20%, 13%, and 11% for the same customers in 2024. The decrease in concentration among our largest customer reflects continued diversification of our customer base. No other individual customer accounted for 10% or more of revenues in 2025.

Cost of Revenues and Gross Profit

Cost of revenues increased by $1,343,248, or approximately 18.9%, from $7,102,600 in 2024 to $8,445,848 in 2025. The increase in cost of revenues was driven by the higher volume of materials processed and services performed, consistent with overall revenue growth. Cost of revenues as a percentage of revenues increased modestly, resulting in a slight compression in gross margin from 56.2% in 2024 to 55.1% in 2025. Management attributes this compression primarily to changes in service and materials mix, increased logistics and transportation costs, and incremental costs associated with new customer onboarding and data center decommissioning projects. Despite this modest compression, gross margin remained at a healthy level reflective of our service-intensive, technology-assisted processing model.

Operating Expenses

The following table sets forth our operating expenses for the years ended December 31, 2025 and 2024.

Total operating expenses increased by $1,724,023, or approximately 19.6%, from $8,807,883 in 2024 to $10,531,906 in 2025. The increase outpaced revenue growth, resulting in a swing from operating income of $296,269 in 2024 to an operating loss of $(186,808) in 2025. The primary drivers of the increase in operating expenses were as follows:

Payroll Expenses. Payroll expenses increased by $709,442, or approximately 14.8%, from $4,780,729 in 2024 to $5,490,171 in 2025. The increase reflects continued headcount investment to support revenue growth, expanded service capabilities, and operational infrastructure needs associated with the METech business combination.

General and Administrative. General and administrative expenses increased by $387,232, or approximately 18.7%, from $2,072,830 in 2024 to $2,460,062 in 2025. The increase reflects higher operating costs associated with the growth of the business and incremental administrative costs associated with becoming a reporting public company following the April 2025 business combination.

Professional Fees. Professional fees increased by $328,853, or approximately 159.1%, from $206,705 in 2024 to $535,558 in 2025. The significant increase is attributable primarily to legal, accounting, audit, and advisory fees incurred in connection with the reverse acquisition transaction completed in April 2025, public company compliance costs, and ongoing SEC reporting requirements.

Rent and Lease Expense. Rent and lease expense increased by $267,767, or approximately 17.4%, from $1,539,868 in 2024 to $1,807,635 in 2025, consistent with expansion of our facility footprint and inflationary adjustments in facility lease costs across our operational locations. As of December 31, 2025, the Company had total future minimum lease obligations of $2,727,953 with a present value of $2,330,987, using a weighted average discount rate of 4.4% and a weighted average remaining term of approximately 39 months.

Depreciation and Amortization. Depreciation and amortization decreased by $19,222, or approximately 18.4%, from $104,378 in 2024 to $85,156 in 2025, reflecting the continued reduction in net book value of our existing asset base, partially offset by additions of property and equipment.

Other Income and Expense

Total other income (expense) resulted in net other income of $189,573 for the year ended December 31, 2025, compared to net other expense of $(85,157) in 2024, a positive variance of $274,730. The improvement was attributable to the following:

Employee Retention Credit. During the year ended December 31, 2025, the Company received an Employee Retention Credit (“ERC”) totaling $346,000, which is reflected in other income. This represents a significant non-recurring item that contributed materially to other income in the current year. No comparable amount was received in 2024.

Interest Expense. Interest expense increased by $67,064, or approximately 68.6%, from $97,703 in 2024 to $164,767 in 2025. The increase reflects higher outstanding debt balances during 2025, including new notes payable issued in 2025, some of which carry elevated interest rates (see Note 5 to the consolidated financial statements). Cash paid for interest was $198,038 in 2025 compared to $143,841 in 2024.

Net Income

Net income for the year ended December 31, 2025, was $2,765, compared to net income of $211,112 for the year ended December 31, 2024. The significant decrease in net income is primarily attributable to the increase in operating expenses, particularly payroll, professional fees, and general and administrative costs, which exceeded the growth in gross profit. Net income in 2025 was supported materially by the $346,000 Employee Retention Credit received during the year; absent this non-recurring item, the Company would have recorded a net loss. Basic and diluted earnings per share were $0.00 in both 2025 and 2024, based on weighted average shares outstanding of 87,964,090 in each period.

“Liquidity” refers to our ability to generate adequate amounts of cash to meet our needs for cash. We believe we will have adequate liquidity to maintain current operations during 2026, but we may choose to locate additional sources of cash to facilitate growth and expansion. “Capital resources” refers to assets we use in our business to produce goods or deliver services, such as machinery, buildings, tools, and technology. Capital resources have a long-term, multi-use lifespan. These assets enhance our production efficiency, increase profitability, and are crucial for generating income and sustainable growth.

As of December 31, 2025, the Company had cash of $276,855 compared to $470,273 as of December 31, 2024. The Company’s principal sources of liquidity have consisted of cash generated from operations and proceeds from debt financing. The following table summarizes our cash flows for the years ended December 31, 2025 and 2024.

Operating Activities

Cash provided by operating activities was $79,517 for the year ended December 31, 2025, compared to $458,921 in 2024, a decrease of $379,404. Despite net income of only $2,765, cash from operations was positive due to non-cash add-backs of $234,837 in bad debt expense and $85,156 in depreciation. However, significant working capital headwinds offset these items: accounts receivable increased by $707,203 (reflecting business growth and timing of collections), and accounts payable declined by $584,364. These outflows were substantially offset by a $1,107,042 increase in accrued expenses, reflecting the timing of vendor payments. Financed insurance policy payments of $196,375 also reduced operating cash flows during the year.

Investing Activities

Cash used in investing activities was $2,729 in 2025 compared to $106,291 in 2024. Capital expenditures were minimal in 2025, reflecting a deliberate reduction in new equipment purchases. The Company financed $193,252 of property and equipment through non-cash financing arrangements in 2025, compared to $61,880 in 2024. Additionally, the Company recognized $754,886 of new right-of-use assets and corresponding lease liabilities during 2025 in connection with new and renewed operating lease agreements.

Financing Activities

Cash used in financing activities was $270,206 in 2025, compared to $38,722 in 2024. During 2025, the Company received proceeds from notes payable of $200,000. Repayments of notes payable totaled $470,206 during 2025, compared to $38,722 in 2024. The higher repayment activity reflects payoff and reduction of certain legacy notes and financed insurance balances. Additionally, during the year ended December 31, 2025, accounts payable to a related party totaling $500,000 were settled through the issuance of a note payable, representing a significant non-cash financing activity.

Debt

As of December 31, 2025, the Company had total notes payable of $2,051,993, of which approximately $1,093,031 was classified as current and $958,962 as long-term. This compares to total notes payable of $1,591,815 as of December 31, 2024, of which $1,063,218 was current and $528,597 was long-term. Interest rates on outstanding notes range from approximately 2.07% to 29.93%, reflecting a mix of equipment financing, SBA loans, and other borrowings. The Company also has outstanding loans from Jian Li, an officer, totaling $228,933 at both December 31, 2025 and 2024; these loans bear no stated interest rate and are due on demand.

The current classification of notes payable is important to understand in context. As disclosed in Note 5 to the consolidated financial statements, notes payable without a stated maturity date are classified as current in accordance with GAAP. Approximately $1,225,704 of the $1,617,418 reflected in the 2026 column of the future maturities table below consists of notes with no stated maturity date, the substantial majority of which are owed to the Company’s two largest related-party shareholders — First American Management Group Corp. (~$519,000) and First America Metal Corp. (per Note 8) — and have been outstanding since 2019 through 2022 with no history of demand for repayment. Accordingly, the current classification of this debt reflects a GAAP presentation requirement rather than an expectation of near-term cash outflow. Notes with actual stated maturity dates falling in 2026 total approximately $78,512.

Future debt maturities as of December 31, 2025, are as follows (excluding officer loans):

The Company has not defaulted on any of its outstanding notes payable.

Related Party Transactions

The Company has entered into significant transactions with related parties, the most significant of which are summarized below. For additional detail, see Note 8 to the consolidated financial statements.

First American Management Group Corp (FAMGC). FAMGC is the Company's largest shareholder and is also a noteholder. At December 31, 2025, outstanding notes payable to FAMGC totaled $519,000, compared to $556,000 at December 31, 2024.

First America Metal Corp (FAMC). FAMC is the Company's second largest shareholder and also serves as both a significant customer and primary vendor. FAMC represented approximately 15% of revenues in 2025 and 51% of accounts payable as of December 31, 2025. At December 31, 2025, outstanding notes payable to FAMC totaled $707,000 (2024: $157,000), accounts payable to FAMC totaled $1,159,571 (2024: $2,302,980), and accounts receivable from FAMC totaled $318,273 (2024: $466,449). The substantial reduction in accounts payable to FAMC from $2,302,980 to $1,159,571 reflects partial settlement of amounts owed, including the $500,000 non-cash conversion of accounts payable to a note payable during 2025.

Officer Loans. Jian Li, an officer of the Company, has advanced funds to the Company from time to time. These loans bear no stated interest rate and are due on demand. The outstanding balance was $228,933 at both December 31, 2025 and 2024.

These related party relationships represent a significant aspect of the Company's operations and capital structure. The concentration of purchasing activity with a single vendor (FAMC representing 51% of accounts payable) and revenue concentration with related customers presents potential risks that management monitors on an ongoing basis.

Comparison of Six Months Ended June 30, 2026 and 2025

For the six months ended June 30, 2026, our revenue was $10,590,000, as compared to $8,848,000, for the six months ended June 30, 2025. The increase in revenue of 20% was the result of continued revenue growth. We expect revenues to continue to increase on a year-over-year basis.

Cost of revenues for the six months ended June 30, 2026, and 2025, were $4,312,000 and $4,095,000, respectively, resulting in gross margins of 59% and 54%, respectively. The primary components of cost of revenues include freight and material processing, which comprise the majority of the costs.

For the six months ended June 30, 2026, operating expenses were $5,405,000 as compared to $4,753,000 for the same period in 2025, an increase of 14%. General and administrative expenses increased by $85,000 from $1,253,000 to $1,338,000, payroll expenses increased $447,000 from $2,376,000 to $2,823,000 and rent and lease expenses increased by $103,000 from $868,000 to $971,000. The increases were driven by the expansion in operations and are consistent with the increase in revenues. Professional fees increased from $146,000 during the six months ended June 30, 2025, to $173,000 for the six months ended June 30, 2026. The increase was primarily driven by legal and audit fees. We expect operating expenses to continue to increase with revenues as the Company expands operations.

As a result of the above, our income from operations for the six months ended June 30, 2026, was $873,000 as compared to a loss from operations of $400 for the prior year period.

Other income and expenses included $63,000 in interest expenses during the six months ended June 30, 2026, compared to $62,000 in the prior year. Additionally, the prior year had other income totaling $347,000 related to a non-recurring employee retention credit. We expect interest expenses to increase as the Company obtains additional funding.