{"url_path":"/sec/avai/10-k/2026/item-7","section_key":"item-7","section_title":"Item 7 Management's Discussion and Analysis of","topic":"sec","document":{"doc_type":"10-K","doc_date":"2026-07-14","source_url":"https://www.sec.gov/Archives/edgar/data/1740797/0001740797-26-000017-index.html","accession_number":"0001740797-26-000017","cik":"0001740797","ticker":"AVAI","issuer_name":"AVAI BIO, INC.","edgar_url":"https://www.sec.gov/Archives/edgar/data/1740797/0001740797-26-000017-index.html","primary_entity_key":"0001740797","primary_entity_name":"AVAI BIO, INC."},"word_count":2984,"has_tables":true,"body_markdown":"**Item 7. Management's Discussion and Analysis of\nFinancial Condition and Results of Operations.**\n\n** **\n\nThe following discussion should be read in conjunction\nwith our financial statements and related notes included elsewhere in this report. In addition to historical information, this discussion\nincludes forward-looking information that involves risks and assumptions, which could cause actual results to differ materially from management’s\nexpectations. See “Forward-Looking Statements” included in this report.\n\n** **\n\n19\n\n \n\n \n\n**Forward-looking statements**\n\n \n\nStatements made in this Form 10-K that are not historical\nor current facts are \"forward-looking statements\" made pursuant to the safe harbor provisions of Section 27A of the Securities\nAct of 1933 (the \"Act\") and Section 21E of the Securities Exchange Act of 1934. These statements often can be identified by\nthe use of terms such as \"may,\" \"will,\" \"expect,\" \"believe,\" \"anticipate,\" \"estimate,\"\n\"approximate\" or \"continue,\" or the negative thereof. We intend that such forward-looking statements be subject to\nthe safe harbors for such statements. We wish to caution readers not to place undue reliance on any such forward-looking statements, which\nspeak only as of the date made. Any forward-looking statements represent management's best judgment as to what may occur in the future.\nHowever, forward-looking statements are subject to risks, uncertainties and important factors beyond our control that could cause actual\nresults and events to differ materially from historical results of operations and events and those presently anticipated or projected.\nWe disclaim any obligation subsequently to revise any forward-looking statements to reflect events or circumstances after the date of\nsuch statement or to reflect the occurrence of anticipated or unanticipated events.\n\n \n\nFinancial information contained in this report and\nin our financial statements is stated in United States dollars and are prepared in accordance with United States generally accepted accounting\nprinciples.\n\n** **\n\nThe following discussion and analysis of our financial\ncondition and results of operations for the years ended March 31, 2026 and 2025 should be read in conjunction with the Financial Statements\nand corresponding notes included in this Annual Report on Form 10-K. Our discussion includes forward-looking statements based upon current\nexpectations that involve risks and uncertainties, such as our plans, objectives, expectations, and intentions. Actual results and the\ntiming of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors,\nincluding those set forth under the Risk Factors and Special Note Regarding Forward-Looking Statements in this report. We use words such\nas “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,”\n“expect,” “believe,” “intend,” “may,” “will,” “should,” “could,”\n“target”, “forecast” and similar expressions to identify forward-looking statements.\n\n \n\n**General Overview**\n\n** **\n\nAvai Bio, Inc. (f/k/a Avant Technologies Inc. and\nTrend Innovations Holding Inc.) is a technology company specializing in acquiring, creating, and developing innovative and advanced technologies\nutilizing artificial intelligence (AI) as well as providing a host of information technology consulting services. The Company considers\nitself a native expert in the field of information technology based on artificial intelligence. Recently, the Company acquired Avant!\nAI and InstantFAME as well as the assets of Wired4Health, Inc., pertaining to certain technology\nassets providing full-stack software development, database management, data integration, project management and cloud services resources.\nUtilize its latest assets acquisitions, Avant mission is to provide innovative and effective AI solutions that transform businesses\nand positively impact society. Avant strive to push the boundaries of AI technology and empower organizations to achieve their full potential.\nWe believe that our technology can provide a self-sustained system that prepares its data from unlabeled information (Unsupervised\nClustering), and then analyzes it using various, proprietary, supervised learning techniques, Improved data efficiency: Unsupervised learning\npre-processes and extracts meaningful features from raw or unlabeled data, preparing them as inputs for the supervised learning model.\nThis improves data efficiency and preparations. Our technology deployed over the acquired assets (in sum or as a whole) potentially\nprovides True Learning from Experience - Unsupervised learning is utilized to learn relevant information from many source domains. This\nknowledge is then evaluated and applied to a related or different domain(s), where information might be in short supply. This feature\nis a true learning capability. Avant! can leverage the knowledge learned from the source domain to improve performance in the other domains,\nas well as Factual discovery/conclusion by learning data - Avant! Unsupervised learning techniques, like clustering, help identify groups\nor patterns in the data, reaching conclusions. Then its supervised learning mechanism can create new datasets (information),\nwhich are used for further domains, improving classification and regression tasks. This feature is a true reasoning mechanism.\n\n \n\n**Consideration of Inflation\nReduction Act Excise Tax**\n\n \n\nOn August 16, 2022, the Inflation\nReduction Act of 2022 (the “IR Act”) was signed into federal law. The IR Act provides for, among other things, a new U.S.\nfederal 1% excise tax on certain repurchases of stock by publicly traded U.S. domestic corporations and certain U.S. domestic subsidiaries\nof publicly traded foreign corporations occurring on or after January 1, 2023. The excise tax is imposed on the repurchasing corporation\nitself, not its shareholders from which shares are repurchased. The amount of the excise tax is generally 1% of the fair market value\nof the shares repurchased at the time of the repurchase. However, for purposes of calculating the excise tax, repurchasing corporations\nare permitted to net the fair market value of certain new\n\n20\n\n \n\n \n\nstock issuances against the\nfair market value of stock repurchases during the same taxable year. In addition, certain exceptions apply to the excise tax. The U.S.\nDepartment of the Treasury (the “Treasury”) has been given authority to provide regulations and other guidance to carry out\nand prevent the abuse or avoidance of the excise tax.\n\n** **\n\n**RESULTS OF OPERATIONS**\n\n \n\nWe have incurred recurring losses to date. Our\nfinancial statements have been prepared assuming that we will continue as a going concern and, accordingly, do not include adjustments\nrelating to the recoverability and realization of assets and classification of liabilities that might be necessary should we be unable\nto continue in operation.\n\n \n\nWe expect we will require additional capital\nto meet our long-term operating requirements. We expect to raise additional capital through, among other things, the sale of equity or\ndebt securities.\n\n \n\nFISCAL YEAR ENDED MARCH 31, 2026, COMPARED TO FISCAL YEAR ENDED\nMARCH 31, 2025\n\n \n\n*Revenue*\n\nDuring the fiscal years ended March 31, 2026\nand 2025, the Company did not generate revenue.\n\n \n\n*Operating expenses*\n\nTotal operating expenses for the years ended March\n31, 2026 and 2025, were $1,480,191 and $1,532,792. The operating expenses for the year ended March 31, 2026 included $26,070 in amortization\nand depreciation expenses; $258,410 in consulting services; $792,265 in general and administrative expenses; $290,551 in marketing expenses;\n$97,895 in professional fees; and $15,000 in research and development expenses. The operating expenses for the year ended March 31, 2025,\nincluded $74,320 in amortization and depreciation expenses; $517,739 in consulting services; $762,478\nin general and administrative expenses; $85,164 in marketing expenses; $77,399 in professional fees; $857 in rent expense; and $14,835\nin website expenses. Total operating expenses for 2026 decreased by 3%, or $52,601, primarily due to lower consulting services,\namortization.\n\n \n\n*Other Income (Loss)*\n\nTotal other income for the years ended March 31, 2026\nand 2025, were $0 and $450,000, respectively. Other income included debt forgiveness. Total other income for 2026 decreased by 100% because\nthere was no similar income this year.\n\n \n\nTotal other expenses for the years ended March 31,\n2026 and 2025, were $269,318 and $59,323, respectively. Other expenses included discount on convertible notes ($104,400 and $47,775 for\nthe years ended March 31, 2026 and 2025, respectively); interest on convertible notes ($140,000 and $11,548 for the years ended March\n31, 2026 and 2025, respectively); and interest on loan from related parties ($24,918 and $0 for the years ended March 31, 2026 and 2025,\nrespectively). Total other expenses for 2026 increased by 354%, or $209,995, primarily due to a\nhigher number of convertible notes this year.\n\n \n\n*Net Income (Loss)*\n\nOur net losses for the fiscal years ended March\n31, 2026 and 2025, were $1,749,509 and $1,142,115. Net losses for 2026 increased by 53%, or $607,394. The main impact on the increase\nin net loss was the increase in operating expenses and other expenses as described above.\n\n** **\n\n**LIQUIDITY AND CAPITAL RESOURCES AND CASH REQUIREMENTS**\n\n \n\nAs of March 31, 2026 and 2025, the Company had\ncash of $23,145 and $81,053, respectively. The Company had a working capital deficit of $3,298,511 and $1,695,484 as of March 31, 2026\nand 2025, respectively.\n\n \n\nAs of March 31, 2026, our total assets were $572,696\ncomprised of $89,340 in current assets; $105,542 in intangible assets; $377,814 in due from subsidiaries and our total liabilities were\n$3,387,851.\n\n \n\nAs of March 31, 2025, our total assets were $224,745\ncomprised of $93,133 in current assets; $131,612 in intangible assets and our total liabilities were $1,788,617.\n\n \n\nStockholders’ deficit increased from\n$1,563,872 as of March 31, 2025 to $2,815,155 as of March 31, 2026.  \n\n \n\n21\n\n \n\n \n\n \n\n \n**March 31, 2026**\n \n**March 31, 2025**\n \n**$ Change**\n \n**% Change**\n\nNet cash used in operating activities\n$\n(1,009,844)\n \n$\n(1,160,610)\n \n$\n150,766\n \n13%\n\nNet cash provided by financing activities\n \n951,936\n \n \n1,241,382\n \n \n(289,446)\n \n(23)%\n\n**Net cash increase (decrease) for period**\n**$**\n**(57,908)**\n \n**$**\n**80,772**\n \n**$**\n**-**\n \n**-%**\n\n \n\nCASH FLOWS FROM OPERATING ACTIVITIES\n\nDuring the fiscal years ended March 31, 2026 and 2025,\nnet cash flows used in operating activities was $(1,009,844) and $(1,160,610), respectively. Cash flows used in operating activities for\n2026 increased by $150,766 compared to 2025. This increase was primarily driven by an increase in net loss and accounts payable compared\nto the previous year.\n\n \n\nCASH FLOWS FROM INVESTING ACTIVITIES\n\nFor the fiscal years ended March 31, 2026 and 2025,\nthe Company had no investing activities.\n\n \n\nCASH FLOWS FROM FINANCING ACTIVITIES\n\nDuring the fiscal year ended March 31, 2026, net cash\nfrom financing activities was $951,936 consisting of capital stock issued, convertible notes payable, due from subsidiaries, loan from\nrelated parties, loan receivable and loan payable. During the fiscal year ended March 31, 2025, net cash from financing activities was\n$1,241,382 consisting of capital stock issued, loan from related parties and loan payable.\n\n \n\nThere is no assurance that\nour company will be able to obtain further funds required for our continued working capital requirements.\n\n \n\n*Going Concern -* There\nis substantial doubt about our ability to continue as a going concern as the continuation of our business is dependent upon public\noffering and achieving a profitable level of operations. The issuance of additional equity securities by us could result in a significant\ndilution in the equity interests of our current stockholders. Obtaining commercial loans, assuming those loans would be available, will\nincrease our liabilities and future cash commitments.\n\n \n\nDue to the uncertainty of\nour ability to meet our current operating and capital expenses, in their report on our audited consolidated financial statements, our\nindependent auditors included an explanatory paragraph regarding substantial doubt about our ability to continue as a going concern. Our\nfinancial statements have been prepared assuming that we will continue as a going concern, which contemplates that we will realize our\nassets and satisfy our liabilities and commitments in the ordinary course of business.\n\n \n\n**Limited operating history;\nneed for additional capital**\n\n** **\n\nThere is no historical financial\ninformation about us upon which to base an evaluation of our performance. We are in a start-up stage of operations and have generated\nlimited revenues since inception. We cannot guarantee that we will be successful in our business operations. Our business is subject to\nrisks inherent in the establishment of a new business enterprise, including limited capital resources and possible cost overruns due to\nprice and cost increases in services and products.\n\n** **\n\n**Off-Balance Sheet Arrangements**\n\n \n\nThe Company does not have\nany off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company's financial condition,\nchanges in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.\n\n** **\n\n**Critical Accounting Policies and Use of Estimates**\n\n \n\nOur Management’s Discussion and Analysis of\nFinancial Condition and Results of Operations is based upon our financial statements, which have been prepared in accordance with accounting\nprinciples generally accepted in the United States of America (“U.S. GAAP”). The preparation of our financial statements in\naccordance with U.S. GAAP requires us to make certain estimates, judgments and assumptions that affect the reported amount of assets and\nliabilities as of the date of the financial statements, the reported amounts and classification of revenues and expenses during the periods\npresented, and the disclosure of contingent assets and liabilities. We evaluate our estimates and assumptions on an ongoing basis and\nmaterial changes in these estimates or assumptions could occur in the future. Changes in estimates are recorded on the period in which\nthey become known.\n\n \n\n22\n\n \n\n \n\nWe base our estimates on historical experience and\nvarious other assumptions that we believe to be reasonable under the circumstances and at that time, the results of which form the basis\nfor making judgments about the carrying values of assets and liabilities that are not readily-apparent from other sources. Actual results\nmay differ materially from these estimates if past experience or other assumptions do not turn out to be substantially accurate.\n\n \n\nWe believe that the accounting policies described\nbelow are critical to understanding our business, results of operations, and financial condition because they involve significant judgments\nand estimates used in the preparation of our financial statements. An accounting is deemed to be critical if it requires a judgment or\naccounting estimate to be made based on assumptions about matters that are highly uncertain, and if different estimates that could have\nbeen used, or if changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact our financial\nstatements. Other significant accounting policies, primarily those with lower levels of uncertainty than those discussed below, are also\ncritical to understanding our financial statements. The notes to our financial statements contain additional information related to our\naccounting policies and should be read in conjunction with this discussion.\n\n \n\n*Use of Estimates*\n\nThe preparation of financial statements in conformity\nwith generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of\nassets and liabilities and disclosure of contingent assets and liabilities at the date the financial statements and the reported amount\nof revenues and expenses during the reporting period. Actual results could differ from those estimates.\n\n \n\n*Fair Value of Financial Instruments*\n\nFor certain of the Company’s financial instruments,\nincluding cash, accounts payable, accrued liabilities and short-term debt, the carrying amounts approximate their FV due to their short\nmaturities.\n\n \n\nFinancial Accounting Standards Board (“FASB”)\nAccounting Standards Codification (“ASC”) Topic 820, *Fair Value Measurements and Disclosures*, requires disclosure of\nthe FV of financial instruments held by the Company. FASB ASC Topic 825, *Financial Instruments*, defines FV, and establishes a three-level\nvaluation hierarchy for disclosures of FV measurement that enhances disclosure requirements for FV measures. The carrying amounts reported\nin the\n\n \n\nconsolidated balance sheets for receivables and current\nliabilities each qualify as financial instruments and are a reasonable estimate of their FV because of the short period of time between\nthe origination of such instruments and their expected realization and their current market rate of interest. The three levels of valuation\nhierarchy are defined as follows:\n\n \n\n \n●\nLevel 1 inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets.\n\n \n\n \n●\nLevel 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets in inactive markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.\n\n \n\n \n●\nLevel 3 inputs to the valuation methodology us one or more unobservable inputs which are significant to the FV measurement.\n\n \n\nThe Company analyzes all financial instruments with\nfeatures of both liabilities and equity under FASB ASC Topic 480, *Distinguishing Liabilities from Equity*, and FASB ASC Topic 815,\n*Derivatives and Hedging*.\n\n \n\nFor certain financial instruments, the carrying amounts\nreported in the balance sheets for cash and current liabilities, including convertible notes payable, each qualify as a financial instrument,\nand are a reasonable estimate of their FV because of the short period of time between the origination of such instruments and their expected\nrealization and their current market rate of interest.\n\n \n\nThe Company uses Level 2 inputs for its valuation\nmethodology for derivative liabilities as their FV were determined by using the Black-Scholes-Merton pricing model based on various assumptions.\nThe Company’s derivative liabilities are adjusted to reflect FV at each period end, with any increase or decrease in the FV being\nrecorded in results of operations as adjustments to FV of derivatives.\n\n \n\n23\n\n \n\n \n\n*Income Taxes*\n\nThe Company accounts for income taxes in accordance\nwith ASC Topic 740, *Income Taxes*. ASC 740 requires a company to use the asset and liability method of accounting for income taxes,\nwhereby deferred tax assets are recognized for deductible temporary differences, and deferred tax liabilities are recognized for taxable\ntemporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax\nbases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some\nportion, or all of, the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects\nof changes in tax laws and rates on the date of enactment.\n\n \n\nUnder ASC 740, a tax position is recognized as a benefit\nonly if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination\nbeing presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized\non examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. The Company has\nno material uncertain tax positions for any of the reporting periods presented."}