{"url_path":"/sec/amci/10-q/2026/item-2","section_key":"item-2","section_title":"Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations**","topic":"sec","document":{"doc_type":"10-Q","doc_date":"2026-05-19","source_url":"https://www.sec.gov/Archives/edgar/data/1937891/0001493152-26-024300-index.html","accession_number":"0001493152-26-024300","cik":"0001937891","ticker":"AMCI","issuer_name":"AMC Robotics Corp","edgar_url":"https://www.sec.gov/Archives/edgar/data/1937891/0001493152-26-024300-index.html","primary_entity_key":"0001937891","primary_entity_name":"AMC Robotics Corp"},"word_count":4662,"has_tables":true,"body_markdown":"** **\n\n**Item\n2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations**\n\n \n\n*References\nto the “Company,” “our,” “us” or “we” refer to AMC Robotics Corporation. The following\ndiscussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the unaudited\nfinancial statements and the notes related thereto. Certain information contained in the discussion and analysis set forth below includes\nforward-looking statements. Our actual results may differ materially from those anticipated in these forward-looking statements as a\nresult of many factors.*\n\n \n\n**Overview**\n\n** **\n\n**Our\nCompany and our Business Overview**\n\n** **\n\nAMC\nRobotics Corporation became publicly listed through its business combination with AlphaVest Acquisition Corp. in December 2025. The transaction\nwas accounted for as a reverse recapitalization, with AMC Corporation deemed the accounting acquirer. Accordingly, the historical financial\nstatements of AMC Corporation form the basis of the Company’s consolidated financial statements.\n\n \n\nThe\nCompany distributes security camera products through e-commerce platforms across the United States, Canada, and Europe. Its product offerings\nare primarily focused on residential and small business applications, including indoor and outdoor smart cameras.\n\n \n\nPrior\nto December 2025, certain e-commerce platform accounts were operated through arrangements with third-party entities, including Ants,\nXiaoyun, and Yishijue, pursuant to authorization agreements. As of December 1, 2025, the Company terminated the contractual arrangements\nwith Xiaoyun and Yishijue, resulting in the deconsolidation of these variable interest entities. Following such termination, the Company\noperates its business without reliance on VIE structures.\n\n \n\n**Recent\nDevelopment and Future Objectives**\n\n** **\n\n**Business\nCombination**\n\n \n\nIn\nDecember 2025, the Company completed its business combination with AlphaVest Acquisition Corp., as a result of which AMC Corporation\nbecame a wholly owned subsidiary of AMC Robotics Corporation. The transaction was accounted for as a reverse recapitalization, with AMC\nCorporation deemed the accounting acquirer for financial reporting purposes.\n\n \n\n**Private\nInvestment in Public Equity (“PIPE”) Financing**\n\n \n\nIn\nconnection with the Business Combination, the Company completed a PIPE financing that generated gross proceeds of $8.0 million. The PIPE\nfinancing closed concurrently with the Business Combination, and the Company issued warrants to investors as part of the transaction.\n\n \n\n**Revenue\nStreams**\n\n \n\nDuring\n2025, the Company’s revenue mix shifted, with a decline in product sales and the introduction of a revenue-sharing arrangement\nwith its related party, Kami Vision Inc.. Under this arrangement, the Company is entitled to a percentage of revenue generated from intelligent\ninformation services. This revenue stream continued during the three months ended March 31, 2026.\n\n \n\n**Business\nOutlook**\n\n \n\nThe\nCompany intends to continue generating revenue from its existing product lines while advancing its strategy to develop and deploy autonomous\nrobotic systems and intelligent security solutions. Management expects that continued execution of this strategy may improve margins\nand support long-term growth, although the timing and extent of such improvements remain subject to market conditions and execution risks.\n\n \n\n34\n\n \n\n** **\n\n**Executive\nSummary of Financial Performance**\n\n \n\n  \nThree months ended March 31,  \n   \n  \n\n(in USD) \n2026  \n2025  \n$ change  \n% Change \n\nTotal Revenue \n 1,184,616  \n 1,792,525  \n (607,909) \n (34)%\n\nCost of Revenue \n (163,960) \n (1,304,195) \n 1,140,235  \n 87%\n\nGross Profit \n 1,020,656  \n 488,330  \n 532,326  \n 109%\n\nOperating Income (Loss) \n 128,539  \n (747,753) \n 876,292  \n NM \n\nNet Income (Loss) \n 145,601  \n (77,177) \n 222,778  \n NM \n\n** **\n\nThe\nCompany’s financial performance for the three months ended March 31, 2026 reflects a shift in operating focus toward profitability,\ncost efficiency, and higher-margin revenue streams.\n\n \n\nTotal\nrevenue decreased by $607,909, or 34%, to $1,184,616 for the three months ended March 31, 2026, compared to $1,792,525 for the same period\nin 2025. The decline was primarily attributable to a reduction in lower-margin product sales and decreased e-commerce volume. Correspondingly,\ncost of revenue decreased by $1,140,235, or 87%, to $163,960, reflecting improved cost discipline, reduced inventory-related inefficiencies,\nand a shift in revenue mix.\n\n \n\nAs\na result, gross profit increased by $532,326, or 109%, to $1,020,656, compared to $488,330 in the prior-year period. Gross margin expanded\nsignificantly from approximately 27% for the three months ended March 31, 2025 to approximately 86% for the three months ended March\n31, 2026. This improvement was primarily driven by reduced inventory impairment, improved procurement and cost controls, and a higher\ncontribution from revenue-sharing and service-based revenue streams.\n\n \n\nOperating\nresults improved from a loss of $747,753 for the three months ended March 31, 2025 to operating loss of $128,539 for the three months\nended March 31, 2026, representing an improvement of approximately $876,292. This improvement was primarily attributable to higher gross\nprofitability and significantly reduced discretionary spending, particularly in sales and marketing expenses, while general and administrative\nexpenses remained relatively consistent between periods.\n\n \n\nFor the three months ended March 31, 2026, the Company reported net income\nof $145,601, compared to a net loss of $77,177 for the three months ended March 31, 2025, representing an improvement of approximately\n$222,778. The improvement in net results reflects enhanced cost efficiency and improved gross margins, partially offset by changes in\nother income and expense items.\n\n \n\nLiquidity\nremained strong, with cash and cash equivalents of $6,632,619 as of March 31, 2026, compared to $7,004,601 as of December 31, 2025, a\ndecrease of $371,982. The decrease was primarily attributable to operating cash outflows during the period, partially offset by proceeds\nfrom warrant exercises.\n\n \n\nCompared\nto March 31, 2025, cash and cash equivalents increased $6.4 million, reflecting proceeds received in connection with the Business Combination\nand related financing activities completed in December 2025. The Company’s strengthened liquidity position has enhanced its ability\nto support working capital needs and execute its operational strategy.\n\n \n\nDuring\nthe three months ended March 31, 2026, the Company continued to focus on improving profitability, enhancing cost efficiency, and maintaining\na disciplined approach to managing its balance sheet.\n\n \n\n**Revision of Previously Issued Financial Statements**\n\n \n\nDuring the preparation of the Company’s unaudited\ncondensed consolidated financial statements for the quarter ended March 31, 2026, management identified certain immaterial prior period\nerrors primarily related to omitted accruals for professional service fees in the Company’s previously issued consolidated financial\nstatements for the year ended December 31, 2025. Management concluded that the errors were not material to the previously issued annual\nfinancial statements for the year ended December 31, 2025 and, therefore, restatement of the previously issued financial statements was\nnot required. However, management further concluded that recording the correction entirely within the quarter ended March 31, 2026 would\nmaterially misstate the Company’s results for the interim period. Accordingly, the Company revised the comparative balance sheet\nas of December 31, 2025 included in the unaudited condensed financial statements to correct such immaterial prior period errors.\n\n \n\n**Results\nof Operations**\n\n** **\n\nThe\nCompany’s results of operations for the three months ended March 31, 2026 were characterized by declining revenue but significantly\nimproved profitability, driven by changes in revenue composition, cost structure, and operational discipline.\n\n \n\nThe\nmost significant drivers of the year-over-year changes include:\n\n \n\n \n●\nA\nshift away from inventory-intensive product sales toward higher-margin revenue-sharing arrangements\n\n \n \n \n\n \n●\nA\nsubstantial reduction in inventory impairment and excess stock\n\n \n \n \n\n \n●\nImproved\ncost alignment with revenue levels, particularly in logistics and marketing\n\n \n \n \n\n \n●\nContinued\nreliance on related-party transactions as a key component of both revenue and profitability\n\n \n\nThese\nchanges reflect a broader strategic repositioning of the Company toward a more sustainable and capital-efficient operating model.\n\n \n\n35\n\n \n\n** **\n\n**Revenue**\n\n \n\n  \nThree months ended March 31,  \n   \n  \n\nRevenue Component \n2026  \n2025  \n$ Change  \n% Change \n\nProduct revenue \n 102,018  \n 1,221,803  \n (1,119,785) \n (92)%\n\nProduct revenue – related party \n 136,548  \n 134  \n 136,414  \n 1,018%\n\nRevenue share – related party \n 946,050  \n 570,588  \n 375,462  \n 66%\n\nTotal Revenue \n 1,184,616  \n 1,792,525  \n (607,909) \n (34)%\n\n \n\nTotal\nrevenue for the three months ended March 31, 2026 was $1,184,616, a decrease of $607,909, or 34%, compared to $1,792,525 for the same\nperiod in 2025. The decline was primarily attributable to a significant reduction in third-party product revenue, partially offset by\nincreases in revenue derived from related party arrangements.\n\n \n\nProduct\nrevenue decreased by $1,119,785, or 92%, to $102,018 for the three months ended March 31, 2026, compared to $1,221,803 in the prior-year\nperiod. The decrease reflects reduced sales volume and a strategic shift away from lower-margin product lines, resulting in a contraction\nof traditional inventory-based sales activities.\n\n \n\nProduct\nrevenue from related parties increased by $136,414 to $136,548 for the three months ended March 31, 2026, compared to $134 in the prior-year\nperiod. While the increase is significant on a percentage basis, related party product revenue remains a relatively small portion of\ntotal revenue. The increase reflects expanded transactions with affiliated entities as part of the Company’s evolving commercial\nrelationships.\n\n \n\nRevenue\nshare from related parties increased by $375,462, or 66%, to $946,050 for the three months ended March 31, 2026, compared to $570,588\nin the prior-year period. This category represents the Company’s participation in revenue-sharing arrangements, including cloud-based\nservices and intelligent information services introduced in 2025. Revenue share has become the largest contributor to total revenue in\nthe current period, reflecting continued growth in these collaborative arrangements.\n\n \n\nThe\noverall change in revenue composition reflects a shift from traditional product sales toward revenue-sharing and service-based models.\nThese arrangements generally involve lower direct costs and reduced working capital requirements compared to inventory-based sales. Management\nbelieves this transition supports a more scalable and potentially higher-margin revenue structure over time, although total revenue declined\nin the current period due to the reduction in product sales.\n\n \n\n36\n\n \n\n** **\n\n**Cost\nof Revenue and Gross Profit**\n\n \n\n  \nThree months ended March 31,  \n  \n\n  \n2026  \n2025  \n$ Change \n\nCost of Revenue \n (163,960) \n (1,304,195) \n 1,140,235 \n\nGross Profit \n 1,020,656  \n 488,330  \n 532,326 \n\nGross Margin \n 86% \n 27% \n 59 pts \n\n** **\n\nCost\nof revenue for the three months ended March 31, 2026 was $163,960, compared to $1,304,195 in the prior-year period, a decrease of $1,140,235.\nGross profit increased to $1,020,656 from $488,330, resulting in gross margin improving to 86% from 27%.\n\n \n\nThe\ndecrease in cost of revenue was primarily driven by significantly lower product-related costs, including reduced inventory-related charges\nand lower sales volume. In addition, logistics, fulfillment, and platform costs declined in line with reduced inventory-based sales activity.\n\n \n\nThe\nimprovement in gross margin also reflects a shift in revenue mix toward revenue-sharing and service-based arrangements, which generally\ncarry lower direct costs compared to product sales. Overall, the results indicate a more favorable cost structure in the current period.\n\n \n\n**Operating\nExpenses**\n\n \n\n  \nThree months ended March 31,  \n   \n  \n\nExpense Category \n2026  \n2025  \n$ Change  \n% Change \n\nGeneral & Administrative \n 854,786  \n 817,412  \n 37,374  \n 5%\n\nSales & Marketing \n 14,332  \n 404,112  \n (389,780) \n (96)%\n\nResearch & Development \n 22,999  \n 14,559  \n 8,440  \n 58%\n\nTotal Operating Expenses \n 892,117  \n 1,236,083  \n (343,966) \n (28)%\n\n \n\nTotal\noperating expenses for the period were $892,117, compared to $1,236,083 in the prior-year period, representing a decrease of $343,966,\nor 28%. The overall reduction was primarily driven by a significant decrease in sales and marketing expenses.\n\n \n\nGeneral\nand administrative expenses were $854,786, compared to $817,412 in the prior-year period, an increase of $37,374, or 5%. The increase\nwas primarily attributable to higher professional fees and other administrative costs associated with operating as a public company following\nthe Business Combination.\n\n \n\nSales\nand marketing expenses decreased to $14,332 from $404,112, a decline of $389,780, or 96%, primarily due to reduced promotional activities.\n\n \n\nResearch\nand development expenses increased to $22,999 from $14,559, an increase of $8,400, or 58%, reflecting continued investment in product\nand technology development.\n\n \n\nOverall,\nthe decrease in total operating expenses was mainly attributable to lower sales and marketing spending, partially offset by increased\ngeneral and administrative expenses and continued investment in research and development.\n\n \n\n37\n\n \n\n** **\n\n**Other\nIncome (Expense)**\n\n \n\n  \nThree months ended March 31,  \n  \n\n  \n2026  \n2025  \n$ Change \n\nOther income – related party \n -  \n 683,898  \n (683,898)\n\nOther income (expense), net \n (9,490) \n 7,185  \n (16,675)\n\nInterest income \n 28,651  \n 318  \n 28,333 \n\nInterest expense – related party \n -  \n (16,502) \n 16,502 \n\nTotal Other Income (loss), Net \n 19,161  \n 674,899  \n (655,738)\n\n** **\n\nTotal\nother income, net was $19,161 for the three months ended March 31, 2026, compared to $674,899 in the prior-year period, a decrease of\n$655,738. The decrease was primarily due to the absence of other income from related parties in the current period, compared to $683,898\nrecognized in the prior-year period.\n\n \n\nInterest\nincome increased to $28,651 from $318, reflecting higher cash balances during the period. Other income (expense), net decreased by $16,675,\nand no related party interest expense was recognized in the current period compared to $16,502 in the prior-year period.\n\n \n\n**Liquidity\nand Capital Resources**\n\n** **\n\n**Liquidity\nOverview**\n\n** **\n\nAs\nof March 31, 2026, the Company had cash and cash equivalents of approximately $6.6 million, compared to approximately $7.0 million as\nof December 31, 2025, representing a decrease of approximately $0.4 million. The decrease was primarily attributable to operating cash\noutflows during the period, partially offset by proceeds from warrant exercises.\n\n \n\nCompared\nto March 31, 2025, cash and cash equivalents increased significantly, primarily reflecting proceeds received in connection with the Business\nCombination and related financing activities completed in December 2025.\n\n \n\nThe\nCompany’s liquidity position continues to be influenced by several key factors:\n\n \n\n●\nOperating performance, including gross margin and expense management\n\n● Working capital dynamics, particularly receivables and payables, including those with related parties\n\n● Access to external financing, including equity financing and capital markets transactions\n\n● Inventory management, which affects cash utilized in operations\n\n \n\nManagement\nbelieves that the Company’s current cash position, together with expected operating cash flows, will be sufficient to meet its\nworking capital requirements and capital expenditure needs for at least the next twelve months from the issuance date of these financial\nstatements. However, the Company’s future liquidity will depend on its ability to sustain profitability, manage working capital\nefficiently, and maintain access to capital markets if needed.\n\n \n\n**Cash\nFlow Analysis**\n\n \n\n  \nThree months ended March 31,  \n  \n\n  \n2026  \n2025  \n$ Change \n\nNet cash (used in)/provided by operating activities \n (391,580) \n 203,985  \n (595,565)\n\nNet cash provided by (used in) investing activities \n -  \n (305,624) \n 305,624 \n\nNet cash provided by (used in) financing activities \n 20,085  \n -  \n 20,085 \n\n** **\n\n38\n\n \n\n** **\n\n**Operating\nActivities**\n\n \n\nNet\ncash used in operating activities was $391,580 for the three months ended March 31, 2026, compared to net cash provided by operating\nactivities of $203,985 in the prior-year period, representing a decrease of $595,565. The use of cash in the current period was primarily\ndriven by changes in working capital, including the timing of collections and payments.\n\n \n\n**Investing\nActivities**\n\n** **\n\nNet\ncash provided by investing activities was nil for the three months ended March 31, 2026, compared to net cash used of $305,624 in the\nprior-year period. The prior-year activity primarily related to transactions involving financial assets, while there were no significant\ninvesting activities in the current period.\n\n \n\n**Financing\nActivities**\n\n** **\n\nNet\ncash provided by financing activities was $20,085 for the three months ended March 31, 2026, compared to no financing activity in the\nprior-year period. The current period activity primarily reflects proceeds from financing-related transactions.\n\n \n\n**Capital\nResources**\n\n** **\n\nThe\nCompany’s capital resources consist primarily of cash on hand and, to a lesser extent, cash generated from operations. Following\nthe Business Combination completed in December 2025, the Company significantly improved its liquidity and capital structure through the\nreceipt of trust proceeds and PIPE financing. The Company may continue to rely on related-party transactions and financing arrangements,\nas well as external financing sources, to support its working capital needs and growth initiatives as necessary.\n\n \n\nThe\nCompany’s capital requirements are driven primarily by working capital needs, operating expenses (including public company costs),\nand potential investments in product development and service offerings. The Company currently does not maintain a revolving credit facility\nor other committed borrowing arrangements.\n\n \n\nManagement\nexpects that the Company’s current cash position and anticipated operating cash flows will be sufficient to meet its short-term\nliquidity needs. However, the Company may seek additional financing to support future growth initiatives or respond to changing market\nconditions.\n\n \n\n**Contractual\nObligations and Commitments**\n\n** **\n\nThe\nCompany’s contractual obligations consist primarily of lease obligations, and other operating liabilities, as disclosed in Note\n9 - Lease and Note 14 – Commitments and Contingencies.\n\n \n\n**Lease\nObligations (ASC 842)**\n\n** **\n\nThe\nCompany has operating lease arrangements for office space and facilities. As of March 31, 2026, lease liabilities totaled $96,051, representing\nthe present value of future lease payments. The Company’s undiscounted future minimum lease payments total approximately $100,060.\nThese obligations are not considered a significant liquidity burden.\n\n \n\n**Purchase\nCommitments**\n\n** **\n\nThe\nCompany enters into purchase commitments with suppliers in the normal course of business. These commitments are generally short-term\nin nature and aligned with expected sales demand. The Company continues to manage inventory levels conservatively, limiting exposure\nto long-term procurement commitments.\n\n \n\n39\n\n \n\n** **\n\n**Related\nParty Obligations**\n\n** **\n\nHistorically,\nthe Company had obligations to related parties, which were reduced during 2025 through settlement using proceeds from financing activities\n(see Note 6). As of March 31, 2026, the Company continues to have transactions and balances with related parties in the ordinary course\nof business; however, outstanding related-party obligations are not material to the Company’s consolidated financial statements.\n\n** **\n\n**Other\nCommitments and Contingencies**\n\n** **\n\nThe\nCompany may be subject to contingencies, including legal or contractual matters, in the ordinary course of business. Management does\nnot believe that any such matters will have a material adverse effect on the Company’s financial position as of March 31, 2026.\n\n \n\n**Overall\nLiquidity Assessment**\n\n** **\n\nAs\nof March 31, 2026, the Company’s liquidity position remains strong following the financing activities completed in December 2025.\nWhile operating cash flows for the three months ended March 31, 2026 were negative, such usage was primarily driven by working capital\ntiming and does not necessarily reflect a deterioration in underlying operating performance.\n\n \n\nThe\nCompany’s current liquidity, combined with improved operating performance and reduced reliance on related-party financing, provides\na solid financial foundation. However, future liquidity will depend on the Company’s ability to sustain operating performance,\neffectively manage working capital, and access external financing if needed.\n\n \n\nManagement\nbelieves the Company is well-positioned to meet its near-term obligations and support its ongoing operations and strategic initiatives.\n\n \n\n**Critical\nAccounting Policies and Estimates**\n\n** **\n\nThe\npreparation of the Company’s unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management\nto make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses, as well as related\ndisclosures. These estimates are based on historical experience, current conditions, and various other assumptions that management believes\nare reasonable under the circumstances.\n\n \n\nBecause\nof the inherent uncertainty involved in making these estimates, actual results could differ materially from those estimates. The Company’s\nmost critical accounting policies are those that involve significant judgment and have a material impact on the financial statements.\nThere have been no material changes to the Company’s critical accounting policies and estimates from those disclosed in the Company’s\nAnnual Report on Form 10-K for the year ended December 31, 2025.\n\n \n\n40\n\n \n\n \n\n**Revenue\nRecognition (ASC 606)**\n\n** **\n\nThe\nCompany recognizes revenue in accordance with ASC 606, *Revenue from Contracts with Customers*, when control of goods or services\nis transferred to customers in an amount that reflects the consideration to which the Company expects to be entitled.\n\n \n\nA\nsignificant area of judgment involves determining whether the Company acts as a principal or an agent in its revenue arrangements, particularly\nin transactions involving:\n\n \n\n \n●\nE-commerce\nplatform sales\n\n \n \n \n\n \n●\nRelated-party\nrevenue-sharing arrangements (see Note 6 – Related Party Transactions)\n\n \n\nThis\nassessment requires evaluation of factors such as control over goods or services, inventory risk, pricing discretion, and responsibility\nfor fulfillment.\n\n \n\nIf\nthe Company is determined to be the principal, revenue is recognized on a gross basis; if the Company is an agent, revenue is recognized\non a net basis. Changes in this assessment could materially affect reported revenue and cost of revenue.\n\n \n\nIn\naddition, revenue-sharing arrangements require judgment in identifying performance obligations and determining the appropriate allocation\nof transaction price. Variability in contract terms or interpretation could impact the timing and amount of revenue recognized.\n\n \n\n**Inventory\nValuation (ASC 330)**\n\n** **\n\nInventory\nis stated at the lower of cost or net realizable value. Cost is determined using standard costing methods, which approximate actual costs.\n\n \n\nThe\nCompany evaluates inventory for excess quantities, obsolescence, and slow-moving items. This evaluation requires significant judgment\nregarding forecasted demand, product lifecycle and technological obsolescence, and pricing trends and competitive conditions.\n\n \n\nDuring\n2025, the Company improved its inventory management practices, resulting in reduced inventory levels and lower impairment charges compared\nto prior periods. These practices continued during the three months ended March 31, 2026. However, inventory valuation remains sensitive\nto changes in demand patterns, product innovation cycles, and market conditions, which could result in additional write-downs in future\nperiods.\n\n \n\n**Allowance\nfor Expected Credit Losses (ASC 326)**\n\n** **\n\nThe\nCompany accounts for expected credit losses under ASC 326 using a loss-rate methodology based on historical credit loss experience, current\neconomic conditions, and forward-looking information.\n\n \n\nA\nsignificant portion of the Company’s accounts receivable is due from related parties (see Note 8), which introduces concentration\nrisk. Management evaluates collectability on an ongoing basis, considering factors such as the financial condition of counterparties,\npayment history, and contractual terms.\n\n \n\nWhile\nhistorical credit losses have been limited, changes in the financial condition of related parties or business relationships could result\nin increased credit loss provisions in future periods.\n\n \n\n41\n\n \n\n \n\n**Warranty\nLiabilities**\n\n** **\n\nThe\nCompany provides warranties on certain products and recognizes a liability for estimated warranty costs at the time of sale.\n\n \n\nWarranty\nliabilities are estimated based on historical claim rates, product failure trends, and estimated repair or replacement costs. These estimates\nrequire judgment and may be affected by changes in product design, manufacturing quality, or customer usage patterns. Actual warranty\ncosts may differ from estimates, resulting in adjustments in future periods.\n\n \n\n**Variable\nInterest Entity (VIE) Consolidation (ASC 810)**\n\n** **\n\nThe\nCompany evaluates its involvement with variable interest entities in accordance with ASC 810. A VIE is consolidated if the Company is\ndetermined to be the primary beneficiary.\n\n \n\nHistorically,\nthe Company consolidated certain VIEs that held e-commerce platform accounts. In December 2025, the Company terminated the underlying\ncontractual arrangements and deconsolidated these entities (see Note 1). As of March 31, 2026, the Company does not consolidate these\nentities.\n\n \n\nThe\nevaluation of VIE relationships requires judgment, particularly in assessing contractual arrangements and decision-making authority.\nChanges in such arrangements or in the Company’s level of involvement could result in future consolidation or deconsolidation.\n\n \n\n**Related\nParty Transactions (ASC 850)**\n\n** **\n\nThe\nCompany engages in transactions with related parties, including revenue-sharing arrangements and product sourcing (see Note 6).\n\n \n\nAccounting\nfor related-party transactions requires judgment in determining the appropriate revenue recognition treatment, classification, and presentation.\nBecause these transactions may not be conducted on an arm’s-length basis, there is an increased risk of misstatement if terms are\nnot properly evaluated.\n\n \n\nThe\nCompany monitors related-party balances and transactions on an ongoing basis to ensure appropriate recognition and disclosure.\n\n \n\n**Forward\nPurchase Agreement**\n\n** **\n\nIn\nconnection with the Business Combination completed in December 2025, the Company entered into a Forward Purchase Agreement (“FPA”)\nwith Harraden Circle Investments. Under the terms of the arrangement, the Company funded prepayments in exchange for the future settlement\nof shares of its common stock.\n\n \n\nDuring\n2025, the Company funded prepayments under the arrangement and received partial settlements. As of December 31, 2025 and March 31, 2026,\nan FPA subscription receivable of $1,678,678 remained outstanding.\n\n \n\nThe\nCompany evaluated the FPA and determined that it is appropriately accounted for as an equity transaction. Accordingly, the outstanding\nbalance is presented as a reduction to additional paid-in capital within stockholders’ equity.\n\n \n\nThere\nwere no material changes to the terms of the FPA during the three months ended March 31, 2026. Refer to the Company’s Annual Report\non Form 10-K for the year ended December 31, 2025 for additional details regarding the FPA.\n\n \n\n**Income\nTaxes (ASC 740)**\n\n** **\n\nThe\nCompany accounts for income taxes under ASC 740, *Income Taxes*, which requires recognition of deferred tax assets and liabilities\nfor temporary differences between financial reporting and tax bases.\n\n \n\nManagement\nevaluates the realizability of deferred tax assets, including net operating loss carryforwards, and establishes a valuation allowance\nwhen it is more likely than not that such assets will not be realized.\n\n \n\n42\n\n \n\n \n\nThis\nassessment requires judgment regarding:\n\n \n\n \n●\nFuture\ntaxable income\n\n \n \n \n\n \n●\nTiming\nof reversals of temporary differences\n\n \n \n \n\n \n●\nTax\nplanning strategies\n\n \n\nChanges\nin these assumptions could result in adjustments to valuation allowances and income tax expense.\n\n \n\n**Sensitivity\nof Estimates and Judgments**\n\n** **\n\nThe\nCompany’s financial results are particularly sensitive to changes in estimates related to:\n\n \n\n \n●\nRevenue\nrecognition (principal vs. agent)\n\n \n \n \n\n \n●\nInventory\nvaluation and impairment\n\n \n \n \n\n \n●\nCollectability\nof related-party receivables\n\n \n \n \n\n \n●\nVIE\nconsolidation conclusions\n\n \n\nA\nchange in any of these assumptions could materially affect reported revenue, gross profit, net income, and financial position.\n\n \n\nFor\nexample:\n\n \n\n \n●\nA\nchange in principal vs. agent conclusion could significantly alter reported revenue and cost of revenue\n\n \n \n \n\n \n●\nA\nmodest increase in inventory obsolescence assumptions could materially reduce gross margin\n\n \n \n \n\n \n●\nDelays\nin collection of related-party receivables could increase credit loss provisions\n\n \n\nManagement\ncontinuously reviews these estimates and assumptions and adjusts them as necessary based on evolving business conditions.\n\n \n\n**Recently\nIssued Accounting Pronouncements**\n\n** **\n\nFor\na discussion of our new or recently adopted accounting pronouncements, see Note 2, Recent issued accounting pronouncements, to our consolidated\nfinancial statements included elsewhere in this annual report.\n\n \n\nManagement\ndoes not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect\non the consolidated financial statements and notes thereto included elsewhere in this annual report.\n\n \n\n**Off-Balance\nSheet Arrangements**\n\n** **\n\nAs\nof March 31, 2026, the Company does not have any material off-balance sheet arrangements as defined under Item 303 of Regulation S-K.\n\n \n\nHistorically,\nthe Company utilized variable interest entities (“VIEs”) to conduct certain e-commerce operations. These VIEs were consolidated\nin prior periods; however, following the termination of the underlying contractual arrangements in December 2025, the Company deconsolidated\nthese entities. As a result, the Company does not have exposure to the assets, liabilities, or operations of these entities, other than\nany residual contractual relationships, which are not material.\n\n \n\n43\n\n \n\n \n\nThe\nCompany does not have any material guarantees, retained interests in transferred assets, special purpose entities, or other undisclosed\ncommitments that would be considered off-balance sheet arrangements.\n\n \n\nManagement\nbelieves that the absence of material off-balance sheet arrangements reduces the Company’s exposure to contingent liabilities and\nsupports transparency in its financial reporting.\n\n \n\n**Quantitative\nand Qualitative Disclosures About Market Risk**\n\n** **\n\nThe\nCompany is exposed to certain market risks in the normal course of business, including foreign currency risk, interest rate risk, and\ngeneral economic risk.\n\n \n\n**Foreign\nCurrency Risk**\n\n** **\n\nA\nportion of the Company’s transactions are denominated in currencies other than the U.S. dollar, particularly Renminbi (RMB). As\na result, fluctuations in exchange rates may affect revenue, cost of revenue, and operating expenses when translated into U.S. dollars.\n\n \n\nA\nstrengthening of the U.S. dollar relative to foreign currencies may reduce reported revenue and margins, while a weakening of the U.S.\ndollar may have the opposite effect. The Company does not currently use derivative instruments to hedge foreign currency risk.\n\n \n\n**Interest\nRate Risk**\n\n** **\n\nThe\nCompany’s exposure to interest rate risk is limited due to the absence of significant interest-bearing debt. Interest income is\nearned on cash balances, and changes in interest rates may affect the amount of interest income recognized. However, this exposure is\nnot considered material.\n\n \n\n**Concentration\nRisk**\n\n** **\n\nThe\nCompany is exposed to concentration risk due to its reliance on related-party transactions for both revenue and procurement. Changes\nin the financial condition or operating performance of these related parties could materially affect the Company’s results.\n\n \n\n**Sensitivity\nAnalysis**\n\n** **\n\nA\nhypothetical 10% change in foreign exchange rates would not have a material impact on the Company’s financial position based on\ncurrent exposure levels; however, this may change as the Company expands its international operations.\n\n \n\n**Inflation\nand Economic Conditions**\n\n** **\n\nThe\nCompany’s operations are subject to the impact of inflation and broader economic conditions, which may affect both costs and demand.\n\n \n\n**Cost\nImpacts**\n\n** **\n\nInflation\nmay increase the cost of components, manufacturing, logistics, and labor. These cost increases may not be fully recoverable through price\nadjustments, particularly in a competitive market environment where pricing pressure is significant.\n\n \n\n**Demand\nImpacts**\n\n** **\n\nThe\nCompany’s products are generally considered discretionary consumer purchases. As a result, economic downturns, reduced consumer\nconfidence, or higher interest rates may negatively impact demand for the Company’s products.\n\n \n\n**Supply\nChain Considerations**\n\n** **\n\nGlobal\nsupply chain conditions, including component availability and shipping costs, may also affect the Company’s ability to procure\ninventory and maintain margins.\n\n \n\nThe\nCompany actively monitors these factors and seeks to mitigate their impact through pricing strategies, cost management initiatives, and\nsupply chain optimization.\n\n \n\n44"}