{"url_path":"/sec/ofal/10-k/2026/item-7","section_key":"item-7","section_title":"Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations**","topic":"sec","document":{"doc_type":"10-K","doc_date":"2026-07-14","source_url":"https://www.sec.gov/Archives/edgar/data/2036307/0001493152-26-033093-index.html","accession_number":"0001493152-26-033093","cik":"0002036307","ticker":"OFAL","issuer_name":"OFA Group","edgar_url":"https://www.sec.gov/Archives/edgar/data/2036307/0001493152-26-033093-index.html","primary_entity_key":"0002036307","primary_entity_name":"OFA Group"},"word_count":7142,"has_tables":true,"body_markdown":"**ITEM\n7. Management’s Discussion and Analysis of Financial Condition and Results of Operations**\n\n \n\n*The\nfollowing Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) covers\ninformation pertaining to the Company for the years ended March 31, 2026 and 2025 and should be read in conjunction with the audited\nconsolidated financial statements and related notes of the Company as of and for the years ended March 31, 2026 and 2025 and related\nnotes thereto. Except as otherwise noted, the financial information contained in this MD&A and in the financial statements has been\nprepared in accordance with accounting principles generally accepted in the United States of America. All amounts are expressed in U.S.\ndollars unless otherwise noted. This discussion contains forward-looking statements that involve risks and uncertainties including those\ndiscussed below and elsewhere in this annual report, particularly those under “Risk Factors.” Our actual results may differ\nmaterially from those anticipated in these forward-looking statements as a result of certain factors.*\n\n \n\n72\n\n \n\n \n\n**Critical\nAccounting Policies and Critical Accounting Judgments and Estimates**\n\n \n\nThe\nCompany prepared the consolidated financial statements in accordance with U.S. GAAP. These accounting principles require the Company\nto make judgments, estimates and assumptions on the reported amounts of assets and liabilities at the end of each period, and the reported\namounts of revenues and expenses during each period. The Company continually evaluates these judgments and estimates based on its own\nhistorical experience, knowledge and assessment of current business and other conditions, its expectations regarding the future based\non available information, which together form its basis for making judgments about matters that are not readily apparent from other sources.\nSince the use of estimates is an integral component of the financial reporting process, our actual results could differ from those estimates.\nSome of the accounting policies require a higher degree of judgment than others in their application.\n\n \n\nCritical\naccounting policies\n\n \n\nWhen\nreading our consolidated financial statements, you should consider our selection of critical accounting policies, including revenue recognition,\ncontract assets, contract liabilities, mezzanine equity and income taxes, of which the details are set out in our consolidated financial\nstatements.\n\n \n\n**Recently\nAccounting Pronouncements**\n\n \n\nSee\nthe discussion of the recent accounting pronouncements contained in Note 3 for the years ended March 31, 2026 and 2025 to the consolidated\nfinancial statements, “Summary of Significant Accounting Policies”.\n\n \n\nCritical\naccounting estimates\n\n \n\nYou\nshould also consider the judgment and other uncertainties affecting the application of such policies and the sensitivity of reported\nresults to changes in conditions and assumptions. The Company believes the following accounting policies involve the most significant\njudgments and estimates used in the preparation of our consolidated financial statements.\n\n \n\n**Revenue\nRecognition**\n\n \n\nThe\nCompany adopted the revenue standard Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers.\n\n \n\nAs\na professional interior design and fit-out service provider, the Company recognizes revenue based on the effort or inputs to the satisfaction\nof a performance obligation over time as work progresses because of the continuous transfer of control to the customer and the right\nto bill the customer as costs are incurred.\n\n \n\nThe\nCompany uses the ratio of actual costs incurred to total estimated costs since costs incurred (an input method) represent a reasonable\nmeasure of progress towards the satisfaction of a performance in order to estimate the portion of revenue earned. This method faithfully\ndepicts the transfer of value to the customer when the Company is satisfying a performance obligation that entails a number of interrelated\ntasks or activities for a combined output that requires the Company to coordinate the work of employees and subcontractors. Contract\ncosts typically include direct labor, subcontract and consultant costs, materials and indirect costs related to contract performance.\nChanges in estimated costs to complete these obligations result in adjustments to revenue on a cumulative catch-up basis, which causes\nthe effect of revised estimates to be recognized in the current period. Changes in estimates can routinely occur over the contract term\nfor a variety of reasons including, changes in scope, unanticipated costs, delays or favorable or unfavorable progress than original\nexpectations. When the outcome of the contract cannot be reasonably measured, revenue is recognized only to the extent of contract costs\nincurred that are expected to be recovered. In situations where the estimated costs to perform exceeds the consideration to be received,\nthe Company accrues the entire estimated loss during the period the loss becomes known.\n\n \n\nOur\noperating subsidiary’s contracts may contain variable consideration in the form of unpriced or pending change orders or claims\nthat either increase or decrease the contract price. Variable consideration is generally estimated using the expected value method but\nmay from time to time be estimated using the most likely amount method depending on the circumstance. Estimated amounts are included\nin the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur or\nwhen the uncertainty associated with the variable consideration is resolved. Estimates of variable consideration are based upon historical\nexperience and known trends.\n\n \n\n73\n\n \n\n \n\n**Service\nArrangement Settled in Digital Assets **\n\n \n\nDuring\nthe year ended March 31, 2026, the Company, acting through its Hearth RWA tokenization platform, entered into the Tokenization Agreement,\ndated March 31, 2026, with the Real Word Asset  to provide blockchain-based tokenization infrastructure and related technology services\nin connection with the Client’s mixed-use real estate development project located in Long Island City, New York. Under the Tokenization\nAgreement, the Company is entitled to a non-refundable Platform Technology Fee of $15,000,000, payable in two equal installments and\nsettleable in U.S. dollars or in cryptocurrency.\n\n \n\nThe\nconsideration received constitutes noncash consideration under ASC 606. Noncash consideration is measured at the fair value of the consideration\nreceived at contract inception.\n\n \n\nThe\nClient elected to settle the first installment of the Platform Technology Fee through the transfer of 12,500,000 PPDF\non March 31, 2026. The PPDF received was issued by the customer and was established on March 25, 2026, shortly before the transfer to\nthe Company. As of the date of receipt, the PPDF had not enough established trading history, was not traded in an active market, and\nwas subject to significant liquidity restrictions. Based on these factors, the Company determined that the fair value of the noncash\nconsideration received was not reliably measurable as of March 31, 2026.\n\n \n\nBecause\nthe services had not been performed as of March 31, 2026 and the fair value of the noncash consideration was not reliably measurable,\nthe Company has not recognized any revenue with respect to the Service Arrangement for the period. Consistent with its policy for consideration\nreceived in advance of performance, the Company recorded the arrangement as a contract liability; however, because the fair value of\nthe consideration received could not be reliably measured, the contract liability and the related digital assets received were recorded\nat zero value as of March 31, 2026. Accordingly, the PPDF received is reflected in the consolidated balance sheet at zero carrying amount,\nand no contract liability was recognized at the $15,000,000 million stated contract value.\n\n \n\nThe\nCompany will reassess the arrangement in subsequent periods. Revenue, and any associated remeasurement of the consideration received,\nwill be recognized when (i) the related performance obligation is satisfied and (ii) the fair value of the consideration received becomes\nreliably measurable, such as upon the development of an active trading market for the PPDF or upon disposition. Any subsequent recognition\ncould differ materially from the stated contract value, and the ultimate amount realized, if any, is subject to significant uncertainty.\n\n \n\n74\n\n \n\n \n\n**Results\nof Operations**\n\n \n\n**Comparison\nof Fiscal Years Ended March 31, 2026 and 2025**\n\n \n\nThe\nfollowing table sets forth key components of the results of operations for the years ended March 31, 2026 and 2025:\n\n \n\n  \nFor the years ended March 31,  \n   \n% of \n\n  \n2026  \n2025  \nVariance  \nvariance \n\nRevenue \n$716,885  \n$202,007  \n$514,878  \n 254.88%\n\nCost of revenue \n 553,040  \n 113,376  \n 439,664  \n 387.79%\n\nGross profit \n 163,845  \n 88,631  \n 75,214  \n 84.86%\n\n  \n    \n    \n    \n   \n\nOperating expenses \n    \n    \n    \n   \n\nDepreciation and amortization \n 1,606,981  \n -  \n 1,606,981  \n 100.00%\n\nSelling, general and administrative \n 1,445,961  \n 369,991  \n 1,075,970  \n 290.81%\n\nProfessional services \n 2,665,876  \n 113,729  \n 2,552,147  \n 2,244.06%\n\nAdvertising and marketing \n 530,467  \n 20,558  \n 509,909  \n 2,480.34%\n\nSalaries and wages \n 1,933,078  \n 271,568  \n 1,661,510  \n 611.82%\n\nTotal operating expenses \n 8,182,363  \n 775,846  \n 7,406,517  \n 954.64%\n\n  \n    \n    \n    \n   \n\nLoss from operations \n (8,018,518) \n (687,215) \n (7,331,303) \n 1,066.81%\n\n  \n    \n    \n    \n   \n\nOther income (expense) \n    \n    \n    \n   \n\nGovernment subsidies \n 9,029  \n 20,018  \n (10,989) \n (54.90)%\n\nInterest expense \n (13,725) \n (48,451) \n 34,726  \n (71.67)%\n\nInterest income \n 464  \n 968  \n (504) \n (52.07)%\n\nTotal other income (expense), net \n (4,232) \n (27,465) \n 23,233  \n (84.59)%\n\n  \n    \n    \n    \n   \n\nLoss before income tax expense \n (8,022,750) \n (714,680) \n (7,308,070) \n 1,022.57%\n\nIncome tax expense \n (66) \n -  \n 66  \n 100.00%\n\nNet loss \n$(8,022,816) \n$(714,680) \n$(7,308,136) \n 1,022.57%\n\n \n\n**Revenue**\n\n \n\nThe\nfollowing table sets forth the breakdown of the revenue by major revenue type for the years ended March 31, 2026 and 2025, respectively:\n\n \n\n  \nFor the years ended March 31, \n\n  \n2026  \n2025  \nVariance \n\n  \n(US$)  \n% of revenue  \n(US$)  \n\n**% of**\n\n**revenue**\n  \nAmount  \n% \n\nRevenue \n    \n    \n    \n    \n    \n   \n\nDesign, Design and fit-out \n 609,486  \n 85.02% \n 97,440  \n 48.24% \n 512,046  \n 525.50%\n\nOthers \n 107,399  \n 14.98% \n 104,567  \n 51.76% \n 2,832  \n 2.71%\n\nTotal revenue \n 716,885  \n 100.00% \n 202,007  \n 100.00% \n 514,878  \n 254.88%\n\n \n\nThe\nCompany’s revenue increased by $514,878, or 254.88%, from $202,007 for the year ended March 31, 2025 to $716,885 for the year ended\nMarch 31, 2026, primarily due to a growth in customer demand for services during the year ended March 31, 2026. The primary reason for\nthe increase in revenue was the fulfillment of new design, design and fit-out contracts earned in the year ended March 31, 2026. The\nCompany expects revenue will continue to improve in the coming years along with the business environment stabilization, construction\nactivities resume, and investment sentiment recovery.\n\n \n\nThe\nCompany’s backlog of ongoing projects provides a certain degree of revenue stability going forward. As of March 31, 2026, the Company\nhad 7 projects in progress with a total contract amount of $584,110 and recognized the related revenue of $35,418 up to the year ended\nMarch 31, 2026. The Company expects that such projects in progress as of March 31, 2026 will be completed and the remaining related revenue\nof $548,692 will be recognized during the year ending March 31, 2027. While overall market conditions remain uncertain, Due to the recovery\nin client activities, new projects are secured, which may support revenue growth in the coming periods.\n\n \n\nIn\naddition, preliminary discussions are underway regarding potential new projects and strategic collaborations, which would support\nrevenue growth in the coming periods. The Company is expanding its footprint beyond Hong Kong into the Greater Bay Area and\ninternational markets to improve the market diversification. Efforts are also made for vertical integration across the whole project\nlifecycle. The Company is also focused on innovation, efficiency, and scalability, transitioning from a traditional project-based\nmodel to a subscription-based model for AI tools, real estate development and senior care infrastructure. The Company has started to\nimplement AI-driven digital transformation to optimize design workflows and cost structures. OFA QikBIM is an\nAI-powered Building Information Modeling (“BIM”) platform designed to automate portions of the architectural and\nengineering design process, including the generation of coordinated architectural drawings, structural plans, BIM models, and\nrelated project documentation. The Company, through its Hearth RWA tokenization platform, will provide certain\nblockchain-based tokenization infrastructure and related technology services in connection with certain projects.\n\n \n\n75\n\n \n\n \n\nRevenue\nfrom the design, design and fit-out services increased by $512,046, or 525.50%, from $97,440 for the year ended March 31, 2025 to $609,486\nfor the year ended March 31, 2026. The increase was mainly due to a growth in customer demand for design and fit-out services during\nthe year ended March 31, 2026. This exceptional growth was primarily driven by the successful execution of a major project secured in\nJune 2025, which was substantially completed by the end of March 2026. Our revenue is subject to significant fluctuations based on the timing\nand completion of major projects within a given period. For example, our exceptional revenue growth for the year ended March 31, 2026\nwas primarily driven by the successful execution of a major commercial project secured in June 2025 and completed in March 2026, and such\nproject-based revenue may not be indicative of future quarterly trends.\n\n \n\nOthers\nrepresent revenue from the application and project management services and increased by $2,832, or 2.71%, from $104,567 for the year\nended March 31, 2025 to $107,399 for the year ended March 31, 2026. The revenue from application and project management remained relatively\nstable in this period.\n\n \n\nThe\nfollowing table presents revenue by property type for the years ended March 31, 2026 and 2025, respectively:\n\n \n\n  \nFor the years ended March 31, \n\n  \n2026  \n2025  \nVariance \n\n  \n(US$)  \n% of revenue  \n(US$)  \n% of revenue  \nAmount  \n% \n\nRevenue \n    \n    \n    \n    \n    \n   \n\nCommercial \n$698,738  \n 97.47% \n$80,569  \n 39.88% \n$618,169  \n 767.25%\n\nIndustrial \n 9,415  \n 1.25% \n 37,853  \n 18.74% \n (28,438) \n (75.13)%\n\nInstitutional \n 1,210  \n 0.16% \n -  \n -% \n 1,210  \n 100.00%\n\nResidential \n 7,522  \n 1.00% \n 74,563  \n 36.91% \n (67,041) \n (89.91)%\n\nLands \n -  \n -% \n 9,022  \n 4.47% \n (9,022) \n (100.00)%\n\nTotal revenue \n$716,885  \n 100.00% \n$202,007  \n 100.00% \n$514,878  \n 254.88%\n\n \n\nRevenue\nfrom commercial project increased by $618,169 or 767.25%, from $80,569 for the year ended March 31, 2025 to $698,738 for the year ended\nMarch 31, 2026. The increase was primarily due to the launch of new design and fit-out projects, which resulted in an uptick in business\nduring the year ended March 31, 2026.\n\n \n\nRevenue\nfrom industrial projects decreased by $28,438, or 75.13%, from $37,853 for the year ended March 31, 2025 to $9,415 for the year ended\nMarch 31, 2026. This revenue decline is directly attributable to a lack of active, revenue-generating industrial projects during the\nyear ended March 31, 2026. The completion of prior projects in the year ended March 31, 2025, coupled with a subdued pipeline for new\nindustrial contracts in the year ended March 31, 2026, resulted in this temporary absence of activity within the industrial segment.\n\n \n\nRevenue\nfrom institutional projects increased by $1,210, from none for the year ended March 31, 2025 to $1,210 for the year\nended March 31, 2026. No institutional projects were earned in the year ended March 31, 2025.\n\n \n\nRevenue\nfrom residential projects decreased by $67,041, or 89.91%, from $74,563 for the year ended March 31, 2025 to $7,522 for the year ended\nMarch 31, 2026. The decline was mainly due to the fewer residential projects recognized during the year ended March 31, 2026. However,\nthe Company expects that revenue from the on-going residential segment will increase in the following year ended March 31, 2027 as work\nprogresses and these projects reach revenue recognition milestones.\n\n \n\nRevenue\nfrom lands projects decreased by $9,022, or 100.00%, from $9,022 for the year ended March 31, 2025 to none for the year ended March 31,\n2026. There is no land project this year.\n\n \n\n**Cost\nof revenue**\n\n \n\nThe\nfollowing table sets forth the breakdown of the cost of revenue for the financial years ended March 31, 2026 and 2025:\n\n \n\n  \nFor the years ended March 31, \n\n  \n2026  \n2025  \nVariance \n\n  \n(US$)  \n\n**%\nof cost of**\n\n**revenue**\n  \n(US$)  \n\n**%\nof cost of**\n\n**revenue**\n  \nAmount  \n% \n\nCost of revenue \n    \n    \n    \n    \n    \n   \n\nSubcontracting and material costs \n$526,333  \n 95.17% \n$79,251  \n 69.90% \n$447,082  \n 564.13%\n\nProject staff costs \n 26,707  \n 4.83% \n 34,125  \n 30.10% \n (7,418) \n (21.74)%\n\nTotal cost of revenue \n$553,040  \n 100.00% \n$113,376  \n 100.00% \n$439,664  \n 387.79%\n\n \n\n76\n\n \n\n \n\nThe\ncost of revenue increased by $439,664, or 387.79%, from $113,376 for the year ended March 31, 2025 to $553,040 for the year ended March\n31, 2026, which was mainly due to the increase in subcontracting and material costs and in line with the increase in our revenue.\n\n \n\nThe\nCompany generally outsources its fit-out work to internally approved subcontractors. The subcontracting costs mainly represented the\ncharges and fees paid to the subcontractors who provided labor and services to carry out the fit-out works, and the material costs paid\nto fit-out material suppliers who provided fit-out materials for completing the fit-out works. The subcontracting and material costs\nincreased by $447,082, or 564.13%, from $79,251 for the year ended March 31, 2025 to $526,333 for the year ended March 31, 2026, which\nwas mainly due to the increase in revenue, as stated above, during the year ended March 31, 2026.\n\n \n\nProject\nstaff costs represented salaries and mandatory provident funds provided to the staff in project management and design teams who were\ndirectly involved in provision of services in the projects. Project staff costs decreased by $7,418, or 21.74%, from $34,125 for the\nyear ended March 31, 2025 to $26,707 for the year ended March 31, 2026. The decrease was mainly due to lower staff costs for project\nmanagement and application projects, reflecting cost control for these two projects for the year ended March 31, 2026.\n\n \n\n**Gross\nprofit**\n\n \n\nGross\nprofit from major revenue type is summarized as follows:\n\n \n\n  \nFor the Years Ended March 31,  \n**% of** \n\n  \n2026  \n2025  \nVariance \nVariance \n\nDesign, Design and fit-out \n    \n    \n    \n   \n\nGross profit \n$70,781  \n$13,070  \n$57,711  \n 441.55%\n\nGross profit margin \n 11.61% \n 13.41% \n (1.80)% \n   \n\n  \n    \n    \n    \n   \n\nOthers \n    \n    \n    \n   \n\nGross profit \n$93,064  \n$75,561  \n$17,503  \n 23.16%\n\nGross profit margin \n 86.65% \n 72.26% \n 14.39% \n   \n\n  \n    \n    \n    \n   \n\nTotal \n    \n    \n    \n   \n\nGross profit \n$163,845  \n$88,631  \n$75,214  \n 84.86%\n\nGross profit margin \n 22.86% \n 43.88% \n (21.02)% \n   \n\n \n\nTotal\ngross profit increased by $75,214 or 84.86%, from $88,631 for the year ended March 31, 2025 to $163,845 for the year ended March 31,\n2026. The increase in total gross profit was primarily driven by a significant uplift in revenue from higher-value service offerings,\nreflecting a shift in the business portfolio. Total gross profit margin decreased by 21.02% from 43.88% for the year\nended March 31, 2025 to 22.86% for the year ended March 31, 2026. This change was strategically driven by a shift in the project mix.\nA substantially greater proportion of revenue was generated from the rapidly scaling “Design, Design and Fit-out Services,”\nwhich increased its gross profit by 441.55% while achieving a gross profit margin of 11.61%, down from 13.41%. Conversely, the “Others”\nproject type, while maintaining a very high gross profit margin of 86.65% (up from 72.26%), contributed a smaller relative proportion\nto the total revenue mix. The overall result shows the Company’s effort to actively increase its portfolio toward scalable, higher-value\ncore service offerings, which has successfully driven a large expansion in absolute profit. The decrease in the blended gross margin\ndemonstrates the transition phase of this strategy, as higher-margin but niche services make up a smaller share of a much larger and\ngrowing total revenue base.\n\n \n\nIn\naddition to the mix shift, the margin improvement also reflected better project execution—through tighter cost control, more accurate\nquoting, and leaner staffing aligned with project timelines. These efforts indicate that the Company is not merely scaling up in size,\nbut actively enhancing operational efficiency and sharpening its project delivery capabilities.\n\n \n\n77\n\n \n\n \n\nGross\nprofit from major project type is summarized as follows:\n\n \n\n  \nFor the years ended March 31,  \n% of \n\n  \n2026  \n2025  \nVariance  \nvariance \n\nCommercial \n    \n    \n    \n   \n\nGross profit \n$152,766  \n$48,662  \n$104,104  \n 213.93%\n\nGross profit margin \n 21.86% \n 60.40% \n (38.53)% \n   \n\n  \n    \n    \n    \n   \n\nIndustrial \n    \n    \n    \n   \n\nGross profit \n$3,621  \n$4,835  \n$(1,214) \n (25.11)%\n\nGross profit margin \n 38.46% \n 12.77% \n 25.69% \n   \n\n  \n    \n    \n    \n   \n\nInstitutional \n    \n    \n    \n   \n\nGross profit \n$1,210  \n$-  \n$1,210  \n 100.00%\n\nGross profit margin \n 100.00% \n -% \n 100.00% \n   \n\n  \n    \n    \n    \n   \n\nResidential \n    \n    \n    \n   \n\nGross profit \n$6,248  \n$26,112  \n$(19,864) \n (76.07)%\n\nGross profit margin \n 83.06% \n 35.02% \n 48.04% \n   \n\n  \n    \n    \n    \n   \n\nLand \n    \n    \n    \n   \n\nGross profit \n$-  \n$9,022  \n$(9,022) \n (100.00)%\n\nGross profit margin \n -% \n 100.00% \n (100.00)% \n   \n\n  \n    \n    \n    \n   \n\nTotal \n    \n    \n    \n   \n\nGross profit \n$163,845  \n$88,631  \n$75,214  \n 84.86%\n\nGross profit margin \n 22.86% \n 43.88% \n (21.02)% \n   \n\n \n\nThe\ngross profit from commercial project increased by $104,104, or 213.93%, from $48,662 for the year ended March 31, 2025 to $152,766 for\nthe year ended March 31, 2026. The increase was primarily due to execution of high-value contract on commercial projects during the year\nand launch of other new assignments. Meanwhile, the gross profit margin from commercial projects decreased from 60.40% for the year ended\nMarch 31, 2025 to 21.86% for the year ended March 31, 2026.\n\n \n\nThe\ngross profit from industrial projects decreased by $1,214, or 25.11%, from $4,835 for the year ended March 31, 2025 to $3,621 for the\nyear ended March 31, 2026. The gross profit margin from industrial projects increased from 12.77% for the year ended March 31, 2025 to\n38.46% for the year ended March 31, 2026. The substantial improvement in gross profit margin indicates enhanced cost management and a\nfocus on higher-margin contracts. Management will continue to prioritize profitability and operational efficiency within the industrial\nproject portfolio.\n\n \n\nThe\ngross profit from institutional projects increased by $1,210, or 100.00%, from none for the year ended March 31, 2025 to $1,210 for the\nyear ended March 31, 2026. There is no institutional project for the year ended March 31, 2025.\n\n \n\nThe\ngross profit from residential projects decreased by $19,864, or 76.07%, from $26,112 for the year ended March 31, 2025 to $6,248 for\nthe year ended March 31, 2026. The gross profit margin from residential projects increased from 35.02% for the year ended March 31,\n2025 to 83.06% for the year ended March 31, 2026, mainly due to improved cost control and a higher proportion of early-stage design\nwork. Two on-going major residential contracts with contract value of $518,341 are expected to drive revenue growth in the next fiscal\nyear.\n\n \n\nThe\ngross profit from lands projects decreased by $9,022, or 100%, from $9,022 for the year ended March 31, 2025 to none for the year ended\nMarch 31, 2026. No lands projects are executed in the year ended March 31, 2026.\n\n \n\n78\n\n \n\n \n\n**Operating\nexpenses**\n\n \n\nOperating\nexpenses consist of the following:\n\n \n\n  \nFor year ended   \n\n**For\nthe year ended**\n  \n   \n% of \n\n  \nMarch 31, 2026  \nMarch 31, 2025  \nVariance  \nvariance \n\nDepreciation and amortization \n$1,606,981  \n$-  \n$1,606,981  \n 100.00%\n\nSelling, general and administrative \n 1,445,961  \n 369,991  \n 1,075,970  \n 290.81%\n\nProfessional services \n 2,665,876  \n 113,729  \n 2,552,147  \n 2,244.06%\n\nAdvertising and marketing \n 530,467  \n 20,558  \n 509,909  \n 2,480.34%\n\nSalaries and wages \n 1,933,078  \n 271,568  \n 1,661,510  \n 611.82%\n\nTotal operating expenses \n$8,182,363  \n$775,846  \n$7,406,517  \n 954.64%\n\n \n\nDepreciation\nand amortization increased by $1,606,981, or 100.00%, from none for the year ended March 31, 2025 to $1,606,981 for the year ended March\n31, 2026. The increase is mainly due to depreciation expenses recorded in this year for the hardware and intangible assets, which no\nsuch expenses for the year ended March 31, 2025.\n\n \n\nThe\nselling, general and administrative increased by $1,075,970, or 290.81%, from $369,991 for the year ended March 31, 2025 to $1,445,961\nfor the year ended March 31, 2026. The increase was largely attributable to the establishment of our U.S. headquarters in Rolling Hills,\nCalifornia, alongside the scaling of IT infrastructure, salary and wages and travel activities.\n\n \n\nProfessional\nservices increased by $2,552,147, or 2,244.06%, from $113,729 for the year ended March 31, 2025 to $2,665,876 for the year ended March\n31, 2026. This substantial rise was primarily due to engaging specialized legal, accounting, and consulting services essential for ensuring\nthe Company’s full compliance with U.S. GAAP and SEC rules. This expenditure reflects our commitment to robust financial reporting\nand regulatory adherence. We anticipate this expenditure will decline in future periods as the enhanced policy and internal control framework\nbecomes fully effective.\n\n \n\nThe\nadvertising and marketing increased by $509,909, or 2,480.34%, from $20,558 for the year ended March 31, 2025 to $530,467 for the year\nended March 31, 2026. This substantial increase was a strategic and deliberate investment to support the Company’s significant\nexpansion initiatives following its successful initial public offering (the “IPO”). The capital raised provided the necessary\nresources to build market presence and brand awareness.\n\n \n\nThe\nsalaries and wages expenses increased by $1,661,510, or 611.82%, from $271,568 for the year ended March 31, 2025 to $1,933,078 for the\nyear ended March 31, 2026, which was mainly due to the addition of new staff in the U.S. operations. The U.S. team is based in Rolling\nHills, California, and includes senior leadership such as the Chief Executive Officer and Chief Operations Officer. The office functions\nas the Company’s North American headquarters and serves as a strategic center for business development, partnership outreach, and\nregional market research.\n\n \n\nThe\nteam is currently focused on establishing the Company’s presence in the U.S. through relationship-building with local firms, early-stage\nengagement with clients, and preparation for launching AI-driven architectural services and tokenization services of certain projects.\nWhile still in the investment phase, these initiatives are expected to support the Company’s long-term positioning in high-growth\nmarkets and demonstrate early operational traction.\n\n \n\n**Other\nincome (expenses)**\n\n \n\nOther\nincome (expenses) mainly includes interest (expenses) income, net and other income.\n\n \n\n**Interest\nincome.**The Company recorded interest income of $464 and $968 for the years ended March 31, 2026 and 2025, respectively.\n\n \n\n**Interest\nexpense on bank borrowings.**The interest expenses on bank borrowings were $13,725 and $48,451 for the years ended March 31, 2026\nand 2025, respectively.\n\n \n\nOther\nincome mainly represents the government subsidies.\n\n \n\n79\n\n \n\n \n\n**Government\nsubsidies.**Government subsidies relate to the SME Export Marketing Fund. The SME Export Marketing Fund (EMF) is a funding scheme\nadministered by the Trade and Industry Department (TID) of the Hong Kong Special Administrative Region (HKSAR) Government. Its primary\nobjective is to help small and medium-sized enterprises (SMEs) in Hong Kong expand their businesses through participation in export promotion\nactivities. It provides financial assistance to reduce the cost of marketing and entering new markets outside of Hong Kong. The Company\nrecognizes government subsidies as other income when they are received, as the subsidies are not subject to any past or future performance\nconditions. Government subsidies received and recognized as other income totaled $9,029 and $20,018 for the years ended March 31, 2026\nand 2025, respectively.\n\n \n\n**Income\ntax expense.** Our Company is incorporated in the Cayman Islands. Under the current laws of the Cayman Islands, our Company is not\nsubject to tax on income or capital gain. Additionally, upon payments of dividends to the shareholders, no Cayman Islands withholding\ntax will be imposed.\n\n \n\nOur\noperating subsidiary, Office for Fine Architecture Limited, is subject to income taxes within Hong Kong at the applicable tax rate on\ntaxable income. Hong Kong profit tax rates are 8.25% on assessable profits up to $255,102 (HK$2,000,000), and 16.5% on any part of assessable\nprofits over $255,102 (HK$2,000,000). The Company believes there were no uncertain tax positions as of March 31, 2026 and 2025, respectively.\n\n \n\nThe\nCompany’s subsidiary OFA Financial was incorporated in Delaware and is treated as United States corporations for US federal income\ntax purposes per the Internal Revenue Code (US) and are thereby subject to federal income tax on its worldwide income. The applicable\nU.S. federal corporate income tax rate is 21%. The Company is exempt from Delaware state corporate income tax as it does not conduct\nbusiness within the state of Delaware, though it remains subject to the annual Delaware franchise tax.\n\n \n\nThe\nCompany’s subsidiary Office for Fine Architecture, Inc. was incorporated in California and is treated as a United States corporation\nfor US federal income tax purposes per the Internal Revenue Code (US) and are thereby subject to federal income tax on its worldwide\nincome at a statutory rate of 21%. In addition, Office for Fine Architecture, Inc. is subject to California state corporate tax laws\nand, if it conducts business or has income sourced to California, is generally subject to California corporation tax and applicable California\nfranchise tax obligations.\n\n \n\nGuangzhou\nZhiyi Consulting Services Co., Ltd. is governed by the income tax laws of the PRC and the income tax provisions in respect to operations\nin the PRC is calculated at the applicable tax rates on the taxable income for the periods based on existing legislation, interpretations\nand practices in respect thereof. Under the Enterprise Income Tax Laws of the PRC (the “EIT Laws”), domestic enterprises\nand Foreign Investment Enterprises (the “FIEs”) are usually subject to a unified 25% enterprise income tax rate while preferential\ntax rates, tax holidays and even tax exemption may be granted on a case-by-case basis.\n\n \n\nThe\nCompany believes there were no uncertain tax positions as of March 31, 2026 and 2025, respectively. The Company does not expect that\nits assessment regarding unrecognized tax positions will materially change over the next 12 months. The Company is not currently under\nexamination by an income tax authority, nor has been notified that an examination is contemplated.\n\n \n\n**Net\nloss.**As a result of the foregoing, the Company reported a net loss of $8,022,816 for the year ended March 31, 2026, as compared\nto a net loss of $714,680 for the year ended March 31, 2025.\n\n \n\n**Other\ncomprehensive income**. Foreign currency translation adjustment amounted to $126,915 and $18,435 for the year ended March 31, 2026\nand 2025, respectively. The balance sheet amounts, with the exception of equity, on March 31, 2026 were translated at $1.00 to HK$7.84,\nas compared to $1.00 to HK$7.78 on March 31, 2025. The equity accounts were stated at their historical rate. The average translation\nrates applied to the income statements accounts for the year ended March 31, 2026 and 2025 were $1.00 to HK$7.80 and $1.00 to HK$7.79,\nrespectively. The change in the value of the HK$ relative to the U.S. dollar may affect the financial results reported in U.S. dollar\nterms without giving effect to any underlying change in our business or results of operation.\n\n \n\n80\n\n \n\n \n\n**Liquidity\nand Capital Resources**\n\n \n\nTo\ndate, the Company has financed our operations primarily through cash flows from operations and loans from banks and related parties,\nif necessary. The Company plans to support its future operations primarily from cash generated from its operations and the IPO proceeds.\nIn addition, the Company continues to maintain access to existing bank credit lines and may consider short-term bridge financing if required\nto support operational liquidity.\n\n \n\nAs\nreflected in the audited consolidated financial statements, the Company had net loss of $8,022,816 for the year ended March 31, 2026,\nas compared to net loss of $714,680 for the year ended March 31, 2025. As of March 31, 2026, the Company had cash of $2,713,466 compared\nto $31,950 as of March 31, 2025. The Company had negative working capital that amounted to $4,111,677 as of March 31, 2026 and positive\nworking capital of $93,229 as of March 31, 2025. The working capital requirements are influenced by the size of our operations, the volume\nand dollar value of our sales contracts, the progress of execution on our customer contracts, and the timing for collecting accounts\nreceivable, and repayment of accounts payable.\n\n \n\nAs\nof March 31, 2026, the Company had an outstanding bank borrowings balance of $470,249, of which the bank borrowings of $22,192 will be\npayable within one year and the bank borrowings of $448,057 will be payable after one year. The bank borrowings are at an annual effective\ninterest rate of 3.000%.\n\n \n\nOn\nDecember 11, 2025, the Company received a letter from the Staff notifying the Company that the closing bid price per share for its\nClass A Ordinary Shares was below $1.00 for a\nperiod of 30 consecutive business days and that the Company did not meet the minimum bid price requirement set forth in Nasdaq\nListing Rule 5550(a)(2).\n\n \n\nPursuant\nto Nasdaq Listing Rule 5810(c)(3)(A), the Company had until the Compliance Period, to regain compliance with Nasdaq’s minimum bid\nprice requirement.\n\n \n\nOn\nJune 9, 2026, the Company received the Letter from the Staff notifying the Company that the Company is eligible for the Second Compliance\nPeriod, or until the Compliance Date, to regain compliance, based on the Staff’s determination of the Company meeting the continued\nlisting requirement for market value of publicly held shares and all other initial listing standards for Nasdaq, with the exception of\nthe minimum bid price requirement, and the Company’s written notice to Nasdaq of its intention to cure the deficiency during the\nSecond Compliance Period, by effecting a reverse stock split, if necessary. The Letter has no immediate impact on the listing of the\nCompany’s Ordinary Shares on Nasdaq. If at any time during the Second Compliance Period the closing bid price of the Company’s\nOrdinary Shares is at least $1.00 per share for a minimum of 10 consecutive business days (which may be extended to be a period of up\nto 20 consecutive business days in the discretion of the Staff), Nasdaq will provide the Company with written confirmation of compliance.\nThe Letter does not result in the immediate delisting of the Company’s Class A Ordinary Shares, and the shares will continue to\ntrade uninterrupted under the symbol “OFAL.”\n\n \n\nIf\nthe Company does not regain compliance by the Compliance Date, the Staff will provide written notification that the Company’s Ordinary\nShares is subject to delisting. At that time, the Company may appeal the delisting determination to a hearings panel pursuant to the\nprocedures set forth in the applicable Nasdaq listing rules. However, there can be no assurance that, if the Company receives a delisting\nnotice and appeals the delisting determination by Nasdaq to the panel, such appeal would be successful.\n\n \n\nOn\nMay 21, 2026, at the Extraordinary General Meeting the shareholders approved and authorized the Board to effect a 1-for-10 share consolidation\nof the Company’s Class A Ordinary Shares at its discretion.\n\n \n\nThe\nCompany’s Ordinary Shares have been redesignated as Class A Ordinary\nShares and have commenced trading on Nasdaq on December 17, 2025 as Class A Ordinary\nShares under the same symbol “OFAL.”\n\n \n\nThe\nCompany believes that its current cash and cash flows provided by operating activities, loans from banks, and the net proceeds from its\nIPO will be sufficient to meet its working capital needs in the next 12 months from the balance sheet date. If additional funding is\nneeded, the Company believes it would have access to supplemental bank facilities or bridge financing options, subject to prevailing\nmarket conditions. No assurance can be given, however, that additional financing, if required, would be available at all or on favorable\nterms. Such financing may include the use of additional debt or the sale of additional equity securities. Any financing which involves\nthe sale of equity securities or instruments that are convertible into equity securities could result in immediate and possibly significant\ndilution to the existing shareholders.\n\n \n\n81\n\n \n\n \n\nEven\nthough the management believes that it will be able to successfully execute its business plan, which includes increasing market acceptance\nof the Company’s services to boost its sales volume to achieve economies of scale while applying more effective marketing strategies\nand cost control measures to better manage operating cash flow position, third-party financing and capital issuance, and meet the Company’s\nfuture liquidity needs, there can be no assurances in that regard.\n\n \n\nIn\nresponse to the net loss of $8,022,816 for the year ended March 31, 2026 and a working capital deficit of $4,111,677 as of March 31,\n2026, the Company has implemented, and continues to pursue, a range of measures designed to strengthen its liquidity and capital position.\n\n \n\nFirst,\nin May 2025 the Company completed its IPO, generating net proceeds of approximately $15.3 million that materially strengthened its cash\nposition and capital base. Second, the Company has secured access to committed equity financing: (i) on October 29, 2025, it entered\ninto the PIPE Purchase Agreement with Greentree and TriCore, providing for the issuance and sale, in multiple closings, of up to $50,000,000\nin stated value of Preferred Shares; and (ii) on July 14, 2025, it entered into a Atsion Purchase Agreement with Atsion, establishing\nthe Equity Facility. The Equity Facility is entirely at the Company’s discretion and does not represent a committed obligation\nor guaranteed proceeds; amounts are drawn, if at all, solely at the Company’s election and subject to the terms of the Atsion Purchase\nAgreement. Third, through the arrangement with the Contractor, the Company intends to commercialize the platform and to transition a\nportion of its design operations from a traditional project-based model toward a scalable, subscription-based AI software offering, which\nmanagement expects to broaden the Company’s revenue base and support its longer-term growth and liquidity objectives. Fourth, the\nCompany continues to generate recurring revenue from its core design, fit-out, project-management and platform services, and is expanding\nbeyond Hong Kong into the Greater Bay Area and international markets to diversify its revenue base. In addition to its U.S. operations, the Company maintains business activities and market presence in Hong Kong and\nJapan through its subsidiaries, strategic partnerships, and project development initiatives. Fifth, holders of the Company’s\nPreferred Shares have elected to convert a portion of their holdings into Class A Ordinary Shares, reducing the Company’s potential\ncash redemption obligations. Finally, the Company continues to actively manage operating expenditures and discretionary spending—including\nstaffing, subcontractor and marketing costs—to preserve liquidity, and it retains access to existing bank credit facilities and\nmay pursue short-term bridge financing if required. Based on these plans, which management believes are probable of being effectively\nimplemented, management believes the Company will have sufficient liquidity to meet its obligations as they become due for at least twelve\nmonths from the date these consolidated financial statements are issued. The Company is well-positioned to support its operations and\nexecute its growth strategies over at least the next twelve months. As a result, management has concluded that there is no substantial\ndoubt about the Company’s ability to continue as a going concern, and accordingly the audited consolidated financial statements\ndo not include any related adjustments.\n\n \n\nThe\nfollowing table sets forth a summary of the cash flows for the years ended March 31, 2026 and 2025:\n\n \n\n  \nFor the years ended March 31, \n\n  \n2026  \n2025 \n\nNet cash used in operating activities \n$(4,171,385) \n$(256,215)\n\nNet cash used in investing activities \n$(12,708,670) \n$- \n\nNet cash provided by (used in) financing activities \n$19,551,920  \n$(1,497)\n\nNet increase (decrease) in cash and restricted cash \n$2,671,865  \n$(257,712)\n\nEffect of currency translation on cash and cash equivalents \n$\n9,651\n  \n$21,502 \n\nCash and restricted cash at the beginning of the year \n$31,950  \n$268,160 \n\nCash and restricted cash at the end of the year \n$2,713,466  \n$31,950 \n\n \n\nAs\nof March 31, 2026, the Company had total cash and restricted cash of $2,713,466, compared to $31,950 as of March 31, 2025. Of this amount,\n$1,033,466 represented unrestricted cash available for general corporate and working-capital purposes, and $1,680,000 represented restricted\ncash held in a non-interest-bearing escrow account maintained at East West Bank by Finuvia LLC. Finuvia LLC is an affiliate\nof Precursor Capital Limited, a shareholder of the Company. The restricted\ncash is not available for the Company’s general use and is subject to release only upon satisfaction of the conditions specified\nin the underlying agreements; because the Company retains control over the disbursement of these funds and the release conditions had\nnot been met as of the balance sheet date, the amounts continue to be reported as the Company’s assets. The Company had a working-capital\ndeficit of $4,111,677 as of March 31, 2026, compared to positive working capital of $93,229 as of March 31, 2025, and incurred a net\nloss of $8,022,816 for the year ended March 31, 2026. Accordingly, the Company’s liquidity available for general operations is\nmore limited than the total cash and restricted cash balance.\n\n \n\n82\n\n \n\n \n\n**Operating\nActivities**\n\n \n\nNet\ncash used in operating activities amounted to $4,171,385 for the year ended March 31, 2026, mainly derived from the net loss of $8,022,816,\nmainly offset by increase in depreciation and amortization, and share-based compensation and shares issued for services.\n\n \n\nNet\ncash used in operating activities amounted to $256,215 for the year ended March 31, 2025, mainly derived from the net loss of $714,680,\nplus the decrease in amounts due to related parties, mainly offset by decrease in contract assets and increase in contract liabilities.\n\n \n\n**Investing\nActivities**\n\n \n\nNet\ncash used in investing activities amounted to $12,708,670 for the year ended March 31, 2026, primarily attributable to the Company’s\ninvestment in intellectual property of $12,117,479, together with purchases of property and equipment of $591,191. On March 31, 2026,\nthe Company’s subsidiary, Office for Fine Architecture Limited, entered into the Assignment Agreement with the Contractor, under\nwhich the Company acquired a 50% undivided co-ownership interest in the QikBIM for an aggregate purchase price of $17,500,000, due\nto foreign currency translation at the applicable exchange rate on the reporting date, the recorded amount in the financial statements\nis $17,502,381. $12,117,479 was paid as of March 31, 2026. The acquired intellectual property covers the United States and Hong\nKong standards adaptation and commercialization versions of the system, including its source code, algorithms and modules for user-interface\ndesign, automated structural plan generation, and the generation of mechanical, electrical, plumbing and drainage plans compliant with\nU.S. codes. The Company retains sole governance and commercialization authority over the system.\n\n \n\nNo\ncash used in investing activities for the year ended March 31, 2025.\n\n \n\n**Financing\nActivities**\n\n \n\nNet\ncash provided by financing activities amounted to $19,511,920 for the year ended March 31, 2026, primarily attributable to the\nproceeds from issuance of Class A Ordinary Shares\nupon IPO, issuance of Ordinary Shares after the IPO and proceeds from Series A Preferred Shares.\n\n \n\n**Trend\nInformation**\n\n \n\nExcept\nfor the information disclosed, the Company is not aware of any trends, uncertainties, demands, commitments or events that are reasonably\nlikely to have a material effect on our net revenues, income from continuing operations, profitability, liquidity or capital resources,\nor that would cause reported financial information not necessarily to be indicative of future operating results or financial condition.\nHowever, the Company remains cautiously optimistic about the medium-term outlook, particularly in light of new residential contracts\nsigned in February 2026 and a gradual pickup in client engagement activity in the following period. Historically focused on the Hong\nKong market, we are actively pursuing geographic diversification to expand our operational footprint to oversea markets. We are also\ninvesting in digital transformation initiatives, specifically leveraging artificial intelligence (AI) to enhance design efficiency, optimize\nlabor costs and create new revenue stream.\n\n \n\n**Commitments\nand Contingencies**\n\n \n\n**Commitments**\n\n \n\nAs\nof March 31, 2026, the Company did not have any significant capital and other commitments.\n\n \n\n**Contingencies**\n\n \n\nThe\nCompany is subject to legal proceedings and regulatory actions in the ordinary course of business. The results of such proceedings cannot\nbe predicted with certainty, but the Company does not anticipate that the final outcome arising out of any such matters will have a material\nadverse effect on its financial position, cash flows or results of operations on an individual basis or in the aggregate. As of March\n31, 2026 and 2025, the Company is not a party to any material legal or administrative proceedings.\n\n \n\n83\n\n \n\n \n\nThe\nfollowing table summarizes the contractual obligations as of March 31, 2026:\n\n \n\n  \nPayments due by period \n\n  \n   \nLess than  \n1 – 3  \n4 – 5  \nMore than \n\nContractual obligations \nTotal  \n1 year  \nyears  \nyears  \n5 years \n\nBank borrowings \n$470,249  \n$22,192  \n$145,286  \n$104,372  \n$198,399 \n\nFuture lease payments \n 672,804  \n 183,904  \n 361,737  \n 127,163  \n - \n\n  \n$1,143,053  \n$206,096  \n$507,023  \n$231,535  \n$198,399 \n\n \n\n**Inflation**\n\n \n\nWhile\nglobal inflation has retreated from its peak levels, the economic landscape remains constrained by persistently elevated interest rates.\nThe prolonged high-rate environment continues to dampen financing activity and discretionary spending in Hong Kong. Consequently, we\nface ongoing inflationary pressure on operating costs, particularly wages and materials, while simultaneously contending with softening\nclient demand. This dual pressure creates a challenging margin environment, requiring stringent cost controls to preserve profitability.\nIn order to adapt, we and our subsidiaries would endeavor to seek new business opportunities and would continue to take a conservative\napproach to cost budgeting, including, but not limited to, withholding distribution of staff bonuses, reconsidering staffing needs and\napplying greater pressure on the pricing negotiations with subcontractors and suppliers.\n\n \n\n**Seasonality**\n\n \n\nThe\nnature of our business does not appear to be affected by seasonal variations."}