KIDZ AI swings to $654K net loss in Q3 2026
Sentiment and the balance of points
Rhea-AI Sentiment reads the wording of the document, how positive or negative its language is on a 1 to 5 scale. The balance of points shown with the takes weighs what the document actually discloses, so the two can disagree, for example when a trial that missed its main goal is described in upbeat language.
KIDZ AI Inc. reported lower revenue and a net loss for the three months ended September 30, 2026. Revenue was $675,157, versus $1,287,638 a year earlier; nine-month revenue was $1,676,186, versus $2,829,302. The quarter had a net loss of $654,057, compared with net income of $2,520,989 in 2025. Nine-month net loss was $7,337,665, versus $1,642,387.
Net cash used in operating activities was $2,321,420 for the nine months, compared with $3,174,525 in 2025. Cash, cash equivalents and restricted cash totaled $17,388,425 as of September 30, 2026. Management said cash and working capital were sufficient to support operations and meet obligations due within the next 12 months. In the quarter, KIDZ sold 778,789 Class B shares through its at-the-market program for $7,949,460 in gross proceeds and $7,710,512 in net proceeds.
How this balance works
Rhea-AI gives every point it takes from this document a weight. Minor counts 1, Moderate 3 and Major 9, so one Major point outweighs several Minor ones. The bar adds up the weights on each side, and when neither side holds more than 65% of the total the balance reads Mixed.
It reads the document as published, with the same rules for every company, and it does not look at what the market expected or at how the stock traded, so a point can be objectively good on a day the stock falls.
Rhea-AI Sentiment measures something else, the tone of the wording.
Positive
- Moderate pointNine-month operating cash used was $2,321,420, versus $3,174,525 in 2025.
Negative
- Major pointNine-month net loss was $7,337,665, versus $1,642,387 in 2025.
- Moderate pointThird-quarter revenue was $675,157, versus $1,287,638 a year earlier.
- Minor pointNine-month revenue was $1,676,186, versus $2,829,302 in 2025.
- Minor pointThird-quarter results shifted to a $654,057 net loss from $2,520,989 net income.
Key Figures
Key Terms
deferred revenue financial
at-the-market equity offering financial
payment-in-kind (PIK) interest financial
beneficial ownership blocker regulatory
Level 3 financial
staking rewards financial
FAQ
AI-generated questions and answers. How Rhea-AI works. Not financial advice.
How much revenue did KIDZ report in the third quarter of 2026?
What was KIDZ's net loss for the first nine months of 2026?
Does KIDZ say it has enough cash to meet obligations?
AI-generated analysis. How Rhea-AI works. Not financial advice.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ___________ to __________
Commission File Number:
(Exact name of registrant as specified in its charter) |
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(State or other jurisdiction |
| (IRS Employer |
of incorporation or organization) |
| Identification Number) |
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(Address of principal executive offices) |
| (Zip code) |
(
(Issuer’s telephone number including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
| Trading symbol(s) |
| Name of each exchange on which registered |
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| The | ||
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| The |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer | ☐ | Accelerated filer | ☐ |
☒ | Smaller reporting company | ||
|
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of November 12, 2026, the registrant had
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| INDEX |
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Part I - Financial Information |
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Item 1 – Financial Statements |
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Balance Sheets (Unaudited) |
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Statement of Operations (Unaudited) |
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Statement of Changes in Shareholders’ Deficit (Unaudited) |
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Statement of Cash Flows (Unaudited) |
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Notes to Unaudited Financial Statements |
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Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3 – Quantitative and Qualitative Disclosures About Market Risk |
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Item 4 – Controls and Procedures |
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Part II - Other Information |
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Item 5 – Other Information |
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Item 6 – Exhibits |
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Signatures |
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| 2 |
| Table of Contents |
Part I - Financial Information
Item 1 – Financial Statements
KIDZ AI INC. AND SUBSIDIARIES |
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UNAUDITED INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS |
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(EXPRESSED IN US DOLLARS) |
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| September 30, |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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Restricted cash |
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Prepayments and other current assets |
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Due from related parties |
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Total current assets |
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Noncurrent assets: |
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Property and equipment, net |
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Intangible assets, net |
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Operating lease right-of-use assets, net |
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Investment accounts-restricted |
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Investment accounts-unrestricted |
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Deposit |
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Total noncurrent assets |
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TOTAL ASSETS |
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LIABILITIES AND STOCKHOLDERS' EQUITY |
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Current liabilities: |
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Accounts payable |
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Deferred revenues |
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Due to related parties |
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Operating lease liabilities - current |
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Accrued liabilities and other payables |
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Total current liabilities |
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Noncurrent liabilities: |
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Convertible notes payable |
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Operating lease liabilities - noncurrent |
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Warrant liabilities |
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Total noncurrent liabilities |
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TOTAL LIABILITIES |
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Commitments and contingencies |
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Stockholders' equity: |
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Preferred Stock, $ |
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-Series A, |
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-Series B, |
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-Series C, |
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Class A Common Stock, $ |
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Class B Common Stock $ |
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Treasury stock, |
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Additional paid-in capital |
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Accumulated deficit |
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Total stockholders' equity |
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TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY |
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* Giving retroactive effect to reverse recapitalization effected on April 4, 2025 and reverse stock split on March 9, 2026, June 4, 2026, and August 13, 2026,
See accompanying notes to the consolidated financial statements.
| 3 |
| Table of Contents |
KIDZ AI INC. AND SUBSIDIARIES | ||||||||||||||||
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||||||||||
(EXPRESSED IN US DOLLARS) | ||||||||||||||||
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| For the Three Months Ended September 30, |
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| For the Nine Months Ended September 30, |
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Revenues: |
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Service revenues |
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Total revenues |
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Cost of revenues: |
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Cost of revenues |
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Total cost of revenues |
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Gross profit |
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Operating expenses: |
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Selling and marketing |
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General and administrative |
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Research and development |
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Total operating expenses |
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(Loss) from operations |
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Other income (expense) |
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Change in fair value of warrants |
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Change in fair value of crypto assets |
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Change in fair value of convertible debt |
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Financing cost |
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Staking rewards |
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Interest and other expense |
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Total other (expense) |
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(Loss) income before provision for income taxes |
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Provision for income taxes |
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Net income (loss) |
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Weighted average shares outstanding-Class A Common Stock* |
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Basic and diluted net income (loss) per share-Class A Common Stock* |
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Weighted average shares outstanding-Class B Common Stock* |
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Basic and diluted net income (loss) per share-Class B Common Stock* |
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* Giving retroactive effect to reverse recapitalization effected on April 4, 2025 and reverse stock split on March 9, 2026, June 4, 2026, and August 13, 2026,
See accompanying notes to the consolidated financial statements.
| 4 |
| Table of Contents |
KIDZ AI INC. AND SUBSIDIARIES | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (DEFICIT) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(EXPRESSED IN US DOLLARS) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Preferred Stock-Series A* |
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| Preferred Stock-Series A amount |
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| Preferred Stock-Series B* |
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| Preferred Stock-Series B amount |
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| Preferred Stock-Series C* |
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| Preferred Stock-Series C amount |
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| Class A Common Stock* |
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| Class A Common Stock amount |
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| Class B Common Stock* |
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| Class B Common Stock amount |
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| Additional Paid-in Capital |
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| Treasury stock |
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| Accumulated deficit |
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| Total |
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Balance at December 31, 2025 |
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Net loss |
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Conversion of convertible debt |
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Employee stock compensation |
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Conversion of preferred stock to common stock |
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Issuance of common stock for warrants excise |
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Balance at March 31, 2026 (Unaudited) |
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Net loss |
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Conversion of preferred stock to common stock |
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Conversion of convertible debt |
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Capital contribution from private placement |
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Repurchase of treasury stock |
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Employee stock compensation |
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|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Stock compensation to advisors |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Balance at June 30, 2026 (Unaudited) |
|
|
|
| $ |
|
|
| - |
|
| $ |
|
|
|
|
| $ |
|
|
|
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ | ( | ) |
| $ |
| |||||||||||
Net loss |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) | |||||||
Conversion of preferred stock to common stock |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| ( | ) |
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
|
| |||||||||
Capital contribution from private placement |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Issuance of Class B common stock pursuant to equity line of credit |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Employee stock compensation |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Stock compensation to advisors |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Repurchase of treasury stock |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
| ( | ) | |||||||
Balance at September 30, 2026 (Unaudited) |
|
|
|
| $ |
|
|
| - |
|
| $ |
|
|
| - |
|
| $ |
|
|
|
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ | ( | ) |
| $ |
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2024 |
|
|
|
| $ |
|
|
| - |
|
| $ |
|
|
| - |
|
| $ |
|
|
|
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ | ( | ) | ||||||||||
Net loss |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) | |||||||
Balance at March 31, 2025 (Unaudited) |
|
|
|
| $ |
|
|
| - |
|
| $ |
|
|
| - |
|
| $ |
|
|
|
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ | ( | ) | ||||||||||
Net loss |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) | |||||||
Reverse recapitalization |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
| ( | ) | |||||||
Conversion of convertible debt |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Common stock issued to SPAC public shareholders |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Capital contribution from private placement |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Employee stock compensation |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Stock compensation to advisors |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Conversion of preferred stock to common stock |
|
| ( | ) |
|
| ( | ) |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Issuance of common stock and warrants for intangible assets acquisition |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Stock issued for waiving contractual restriction |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Balance at June 30, 2025 (Unaudited) |
|
|
|
| $ |
|
|
|
|
| $ |
|
|
| - |
|
| $ |
|
|
|
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
| ||||||||||||
Net income |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Employee stock compensation |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Stock compensation to advisors |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Balance at September 30, 2025 (Unaudited) |
|
|
|
| $ |
|
|
|
|
| $ |
|
|
| - |
|
| $ |
|
|
|
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
| ||||||||||||
* Giving retroactive effect to reverse recapitalization effected on April 4, 2025 and reverse stock split on March 9, 2026, June 4, 2026, and August 13, 2026,
See accompanying notes to the consolidated financial statements.
| 5 |
| Table of Contents |
KIDZ AI INC. AND SUBSIDIARIES | ||||||||
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||
(EXPRESSED IN US DOLLARS) | ||||||||
|
|
|
|
|
|
| ||
|
| For the Nine Months Ended September 30, |
| |||||
|
| 2026 |
|
| 2025 |
| ||
|
|
|
|
|
|
| ||
Cash flows from operating activities: |
|
|
|
|
|
| ||
Net (loss) |
| $ | ( | ) |
| $ | ( | ) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
|
|
|
| ||
Amortization of operating lease right-of-use assets |
|
|
|
|
|
| ||
Employee and advisors stock compensation |
|
|
|
|
|
| ||
Deferred tax liabilities |
|
|
|
|
|
|
| |
Change in fair value of warrants |
|
| ( | ) |
|
|
| |
Change in fair value of crypto assets |
|
|
|
|
| ( | ) | |
Change in fair value of convertible debt |
|
|
|
|
|
| ||
Stock issued for waiving contractual restriction |
|
|
|
|
|
|
| |
Staking rewards |
|
| ( | ) |
|
| ( | ) |
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Due from related parties |
|
|
|
|
| ( | ) | |
Prepayments and other current assets |
|
| ( | ) |
|
|
| |
Deposit |
|
|
|
|
| ( | ) | |
Accounts payable |
|
| ( | ) |
|
| ( | ) |
Interest payable |
|
|
|
|
|
|
| |
Deferred revenues |
|
| ( | ) |
|
| ( | ) |
Operating lease liabilities |
|
| ( | ) |
|
| ( | ) |
Due to related parties |
|
| ( | ) |
|
| ( | ) |
Accrued liabilities and other payables |
|
|
|
|
|
| ||
Net cash (used in) operating activities |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
| ( | ) |
|
|
| |
Purchases of crypto assets |
|
| ( | ) |
|
| ( | ) |
Sales of crypto assets |
|
|
|
|
|
| ||
Purchases of intangible assets |
|
|
|
|
| ( | ) | |
Net cash provided by (used in) investing activities |
|
|
|
|
| ( | ) | |
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Proceeds from convertible notes payable |
|
|
|
|
|
| ||
Capital contribution from private placement |
|
|
|
|
|
| ||
Issuance of Class B common stock pursuant to equity line of credit |
|
|
|
|
|
| ||
Proceeds from the reverse recapitalization |
|
|
|
|
|
| ||
Repurchase of treasury stock |
|
| ( | ) |
|
|
| |
Repayment of promissory notes to related party |
|
|
|
|
| ( | ) | |
Proceeds from promissory notes related party |
|
|
|
|
|
| ||
Net cash provided by financing activities |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Net increase in cash, cash equivalents and restricted cash |
|
|
|
|
|
| ||
Cash, cash equivalents and restricted cash, beginning of period |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and restricted cash, end of period |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
Cash paid during the period for: |
|
|
|
|
|
|
|
|
Interest |
| $ |
|
| $ |
| ||
Income taxes |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
Noncash activities: |
|
|
|
|
|
|
|
|
Issuance of common stock for warrants excise |
|
|
|
|
|
| ||
Purchase of crypto assets through convertible debt |
|
|
|
|
|
|
| |
Common stock issued for liability payment |
|
|
|
|
|
|
| |
Conversion of convertible debt to common stock |
|
|
|
|
|
| ||
Conversion of preferred stock to common stock |
|
|
|
|
|
| ||
See accompanying notes to the consolidated financial statements.
| 6 |
| Table of Contents |
KIDZ AI INC. AND SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2026 AND 2025
(UNAUDITED)
Note 1. Description of the Business and Basis of Presentation
KIDZ AI Inc. (formerly Classover Holdings, Inc.) (the “Company”) is a company incorporated on May 2, 2024 under Delaware law as a wholly owned subsidiary of the Battery Future Acquisition Corp., a Cayman Islands exempted Company (the “BFAC”).
On April 4, 2025, upon the closing of the business combination (the “Closing”), BFAC Merger Sub 1 Corp. (“Merger Sub 1”) merged with and into BFAC (the “Reorganization Merger”), with BFAC being the surviving corporation of the Reorganization Merger and becoming a wholly-owned subsidiary of the Company, and then, immediately following the consummation of the Reorganization Merger, BFAC Merger Sub 2 Corp. (“Merger Sub 2”) merged with and into Class Over Inc. (“Classover DE”), with Classover DE being the surviving corporation of the acquisition merger and becoming a wholly-owned subsidiary of the Company.
The Merger is considered as a reverse recapitalization in accordance with Accounting Standards Codification (“ASC”) 805-40. Under this method of accounting, BFAC will be treated as the “acquired” company for financial reporting purposes. This determination is primarily based on Classover DE stockholders comprise majority of the voting power of the Company, directors appointed by Classover DE constituting majority of the Company’s board of directors, Classover DE’s operations prior to the merger comprising the only ongoing operations of the Company, and Classover DE’s senior management comprising all of the senior management of the Company.
Accordingly, for accounting purposes, the financial statements of the Company will represent a continuation of the financial statements of Classover DE with the merger treated as the equivalent of Classover DE issuing stock for the net assets of BFAC, accompanied by a recapitalization. The net assets of BFAC will be stated at historical cost, with no goodwill or other intangible assets recorded. Operations prior to the merger will be presented as those of Classover DE in financial statements of the Company. The consolidation of the Company and its subsidiaries have been accounted for at historical cost and prepared on the basis as if the aforementioned transactions had become effective as of the beginning of the first period presented in the accompanying consolidated financial statements in accordance with ASC 805-50-45-5. All share and per share data has been retroactively restated to reflect the current capital structure of the Company.
Classover DE was formed on March 16, 2022 as a holding company in Delaware, which was
Basis of Presentation
The accompanying unaudited interim condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”), regarding financial reporting, and include all normal and recurring adjustments that management of the Company considers necessary for a fair presentation of its financial position and operating results. The results of operations for the three and nine months ended September 30, 2026 are not necessarily indicative of results to be expected for any other interim period or for the full year of 2026. Accordingly, these statements should be read in conjunction with the Company’s audited financial statements and notes thereto as of and for the years ended December 31, 2025 and 2024.
| 7 |
| Table of Contents |
Note 2. Summary of Significant Accounting Policies
Accounting Principles
The consolidated financial statements and accompanying notes are prepared in accordance with generally accepted accounting principles in the United States of America (GAAP).
Principles of Consolidation
The consolidated financial statements include the financial statements of the Company and its subsidiary. All significant intercompany transactions and balances between the Company and its subsidiary are eliminated upon consolidation.
Liquidity and Going Concern
As of September 30, 2026, the Company had cash and cash equivalents of $
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Significant estimates and assumptions reflected in the consolidated financial statements include, but are not limited to, useful lives of property and equipment, valuation of deferred tax assets and liabilities, operating lease right-of-use assets and liabilities and deferred revenue. Actual results may differ materially from such estimates. Management believes that the estimates, and judgments upon which they rely, are reasonable based upon information available to them at the time that these estimates and judgments are made. To the extent that there are material differences between these estimates and actual results, the Company’s consolidated financial statements will be affected.
Revenue Recognition
The Company has two predominant sources of revenue: time-based subscriptions and credit-based subscriptions to our online courses.
Subscription Revenue
Customers are required to pay in advance to enroll for courses. For time-based subscriptions, we are obligated to provide students with unlimited access to our course for a specified term. For credit-based subscriptions, we offer our students the flexibility to take courses at any time up to the limit of their prepaid balance. Each contract of the online education service is accounted for as a single performance obligation which is satisfied ratably over the service period. We charge fixed fees for the services contracts. The proceeds collected are initially recorded as deferred revenue. For credit-based subscriptions, revenues are recognized proportionately as the courses are delivered. For time-based subscriptions, revenues are recognized on a straight-line basis over the subscription period from the date in which the students activate the courses to the date of expiration. Refunds are provided to the students who decide to withdraw from the subscribed courses within the course offer period and a proportional refund is based on the percentage of untaken courses to the total courses purchased. Historically, the Company has not experienced material refunds.
| 8 |
| Table of Contents |
Principal Agent Considerations
The Company makes its application available to be downloaded through third-party digital distribution service providers. Users who intend to enroll our courses are directed to third-party payment platforms before completing the subscription with us. The Company evaluates the purchases via third-party payment processors to determine whether its revenues should be reported gross or net of fees retained by the payment processor. The Company is the principal in the transaction with the end user as a result of controlling, hosting, and integrating the delivery of the virtual items to the end user. The Company records revenue on a gross basis as a principal and records fees paid to third-party payment platforms as cost of revenues.
Deferred Revenue
Deferred revenue mostly consists of payments we receive in advance of revenue recognition. Revenue is recognized over the life of the subscription, or as the delivery of the pre-purchased class sessions occurs. The Company classifies deferred revenue as a short-term liability on the balance sheets as the longest subscription plan is for twelve months and the remaining sessions are expected to be delivered within twelve months or less.
Cost of Revenue
Cost of revenue predominantly consists of streaming services, third-party payment processing fees, and wages for teachers and certain employees engaged in producing the revenue.
Referral Incentives
Referral incentives are course credits that we offer to our customers for referring new customers. The incentives are expensed as incurred when the credits are consummated and the corresponding expenses, which are independent educators’ compensation allocated to service the referral credits, are included in selling expenses.
Cash, Cash Equivalents and Restricted cash
Cash consists primarily of cash on hand, bank deposits, and U.S. dollar ("USD") balances held in the Company's investment accounts. The Company also maintains U.S. dollar-denominated stablecoins ("USDC") that are classified as restricted cash in the accompanying consolidated balance sheets pursuant to the terms of the Company's financing arrangements. The Company maintains cash deposits with financial institutions that may exceed federally insured limits at times. The following table shows the breakout between cash on hand and bank deposits.
|
| September 30, 2026 |
|
| December 31, 2025 |
| ||
|
|
|
|
|
|
| ||
Cash on hand |
| $ |
|
| $ |
| ||
Bank deposits |
|
|
|
|
|
| ||
Restricted USDC in investment accounts |
|
|
|
|
|
| ||
Total cash shown in the Statement of Cash Flows |
| $ |
|
| $ |
| ||
Deposits
Deposits consist of credit card security deposits, which paid to the bank upon the account open. Management regularly reviews the age of these deposits and changes in payment trends and records an allowance when management believes collection of amounts due are at risk. Accounts considered uncollectible are written off against the allowance after exhaustive efforts at collection is made. As of September 30,2026, there was no allowance for deposits.
Property and Equipment
Property and equipment primarily include computers and furniture stated at cost, less accumulated depreciation. Depreciation is computed on the straight-line method over 5 years.
| 9 |
| Table of Contents |
Leasehold improvements are amortized over the lesser of the life of the lease or the estimated useful life of the leasehold improvements. Costs related to maintenance and repairs that do not extend the assets’ useful life are expensed as incurred.
Investment accounts
Investment accounts consist of cash and crypto assets held for investment purposes. Cash is carried at cost, which approximates fair value due to its short-term nature. The Company has elected to use the weighted average cost (WAC) method to determine the cost basis for its initial recognition of crypto asset holdings. Under this method, the cost of crypto assets sold or exchanged is calculated using the weighted average cost per unit at the time of the transaction. This method is applied consistently across all crypto asset holdings. The Company measures the fair value of its crypto assets subsequently, with gains and losses from changes in the fair value of such crypto assets recognized in net income each reporting period. The Company establishes a deferred tax liability if the market value of crypto assets at the reporting date is greater than the average cost basis of the Company’s crypto holdings at such reporting date, and any subsequent increases or decreases in the market value of crypto assets increases or decreases the deferred tax liability. In determining the gain (loss) to be recognized upon sale, the Company calculates the difference between the sales price and carrying value of the crypto assets with WAC method.
Certain digital assets are pledged as collateral under the Company’s 2025 Convertible Notes (defined in Note 10) as of December 31, 2025. Pursuant to the terms of the Securities Purchase Agreement entered into in connection with the issuance of such notes and the related security documents, approximately 80% of the net proceeds from the issuance of the Notes are required to be used to acquire specified digital assets and deposited into a controlled collateral account for the benefit of the noteholder. These pledged digital assets are subject to a first priority security interest and are held in a block control account while the Notes remain outstanding. Digital assets that are subject to contractual restrictions or are pledged as collateral and not available for general corporate purposes are classified as restricted digital assets. Restricted digital assets are presented separately on the Company’s consolidated balance sheets or disclosed parenthetically within digital assets.
The Company earns staking rewards from certain digital assets held by the Company. Staking rewards are recognized as income when earned and measured at fair value at the time of receipt. Such rewards are not subject to contractual restrictions and are classified as unrestricted digital assets.
Intangible assets
Intangible assets acquired by the Company are stated at cost less accumulated amortization (where the estimated useful life is finite) and impairment losses. Amortization of intangible assets with finite useful lives is charged to profit or loss on a straight-line basis over the assets’ estimated useful life, which is the period over which an asset is expected to be available for use. The estimates and associated assumptions of useful life determined by the Company are based on technical or commercial obsolescence, legal or contractual limits on the use of the asset, and other relevant factors. Both the period and method of amortization are reviewed annually. Intangible assets are not amortized while their useful lives are assessed to be indefinite. Any conclusion that the useful life of an intangible asset is indefinite is reviewed annually to determine whether events and circumstances continue to support the indefinite useful life assessment for that asset. If they do not, the change in the useful life assessment from indefinite to finite is accounted for prospectively from the date of change and in accordance with the policy for amortization of intangible assets with finite lives as set out above.
Income Taxes
The Company provides for income taxes in accordance with the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the carrying amounts of existing assets and liabilities for financial reporting and for income tax reporting. The deferred tax asset or liability represents the future tax return consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. A valuation allowance is established for any deferred tax asset for which it is determined that it is more likely than not that some or all of the deferred tax assets will not be realized.
The Company utilizes a two-step approach to recognizing and measuring uncertain tax positions accounted for in accordance with the asset and liability method. The first step is to evaluate the tax position for recognition by determining whether evidence indicates that it is more likely than not that a position will be sustained if examined by a taxing authority.
| 10 |
| Table of Contents |
The second step is to measure the tax benefit as the largest amount that is 50% likely of being realized upon settlement with a taxing authority. There were no amounts recorded at September 30, 2026 and 2025 related to uncertain tax positions.
Fair Value of Financial Instruments
The Company accounts for certain assets and liabilities at fair value in accordance with the accounting guidance applicable to fair value measurements and disclosures.
The carrying values of cash, accounts payable, deferred revenues, due to related parties, and accrued liabilities and other payables are deemed to be reasonable estimates of their fair values because of their short-term nature.
Research and Development Costs
Research and development expenses are expensed as incurred and include compensation-related expenses to the outsourced subcontractors for maintenance of our online learning platform and ongoing investments in AI-related product development.
Segment Information and Geographic Data
FASB ASC 280, Segment Reporting, establishes standards for reporting information about operating segments on a basis consistent with the Company’s internal organizational structure as well as information about geographical areas, business segments and major customers in consolidated financial statements for details on the Company’s business segments.
The Company uses the management approach to determine reportable operating segments. The management approach considers the internal organization and reporting used by the Company’s chief operating decision maker (“CODM”) for making decisions, allocating resources and assessing performance. The Company’s CODM has been identified as the CEO, who reviews consolidated results when making decisions about allocating resources and assessing performance of the Company. Based on management’s assessment, the Company determined that it has only one operating segment and therefore one reportable segment as defined by ASC 280.
Advertising Costs
Advertising costs amounted to $
Contingencies
The Company records accruals for contingencies and legal proceedings expected to be incurred in connection with a loss contingency when it is probable that a liability has been incurred and the amount can be reasonably estimated.
If a loss contingency is not probable, but is reasonably possible, or is probable but cannot be estimated, the nature of the contingent liability, together with an estimate of the range of possible loss, would be disclosed.
| 11 |
| Table of Contents |
Operating Leases
Effective January 1, 2022, the Company adopted ASU 2016-02, “Leases” (Topic 842), and elected the practical expedients that does not require the Company to reassess: (1) whether any expired or existing contracts are, or contain, leases, (2) lease classification for any expired or existing leases and (3) initial direct costs for any expired or existing leases. For lease terms of twelve months or fewer, a lessee is permitted to make an accounting policy election not to recognize lease assets and liabilities. The Company also adopted the practical expedient that allows lessees to treat the lease and non-lease components of a lease as a single lease component. On November 1, 2022, the Company recognized approximately $
The Company determines if a contract contains a lease at inception. US GAAP requires that the Company’s leases be evaluated and classified as operating or finance leases for financial reporting purposes. The classification evaluation begins at the commencement date and the lease term used in the evaluation includes the non-cancellable period for which the Company has the right to use the underlying asset, together with renewal option periods when the exercise of the renewal option is reasonably certain and failure to exercise such option would result in an economic penalty. The Company’s real estate sublease has been classified as an operating lease.
Since the implicit rate for the Company’s sublease was not readily determinable, the Company used its incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The incremental borrowing rate is the rate of interest that the Company would have to pay to borrow, on a collateralized basis, an amount equal to the lease payments, in a similar economic environment and over a similar term.
The Company generally considers the economic life of its operating lease ROU assets to be comparable to the useful life of similar owned assets. The Company has elected the short-term lease exception; therefore operating lease ROU assets and liabilities do not include leases with a lease term of twelve months or less. Our sublease does not provide a residual guarantee. The operating lease ROU asset also excludes lease incentives. Lease expense is recognized on a straight-line basis over the lease term.
The Company reviews the impairment of its ROU assets consistent with the approach applied for its other long-lived assets. The Company reviews the recoverability of its long-lived assets when events or changes in circumstances occur that indicate that the carrying value of the asset may not be recoverable. The assessment of possible impairment is based on its ability to recover the carrying value of the asset from the expected undiscounted future pre-tax cash flows of the related operations. The Company has elected to include the carrying amount of operating lease liabilities in any tested asset group and includes the associated operating lease payments in the undiscounted future pre-tax cash flows.
Earnings (loss) per Share
The Company computes earnings (loss) per share ("EPS") in accordance with ASC 260, Earnings per Share. Basic earnings (loss) per share is computed using the two-class method, which allocates undistributed earnings or losses between common stockholders and participating securities based on their respective participation rights. The Company's Preferred Stock is considered a participating security and is therefore included in the allocation of earnings (loss) under the two-class method.
Basic earnings (loss) per share attributable to common stockholders is computed by dividing net income (loss) attributable to common stockholders, after the allocation of earnings (loss) to participating securities, by the weighted-average number of shares of common stock outstanding during the period.
Diluted earnings (loss) per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. Potential common shares include convertible preferred stock, convertible notes, warrants and stock options. For the nine months ended September 30, 2026 and 2025, all potential common shares were anti-dilutive due to the Company's net loss and, accordingly, diluted earnings (loss) per share equals basic earnings (loss) per share.
| 12 |
| Table of Contents |
Recently Adopted Accounting Pronouncements
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13), which modifies the measurement of expected credit losses of certain financial instruments. This new guidance was effective for private companies for fiscal years beginning after December 15, 2021, but early adoption was permitted. The adoption of this guidance did not have an impact on our consolidated financial statements and related disclosures.
In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2023-08, Intangibles—Goodwill and Other—Crypto Assets (Subtopic 350-60): Accounting for and Disclosure of Crypto Assets (“ASU 2023-08”). ASU 2023-08 requires in-scope crypto assets (including the Company's digital assets holdings) to be measured at fair value in the statement of financial position, with gains and losses from changes in the fair value of such crypto assets recognized in net income each reporting period. ASU 2023-08 also requires certain interim and annual disclosures for crypto assets within the scope of the standard. The Company adopted this guidance effective January 1, 2025.
Note 3. Property and Equipment, net
Property and equipment consists of the following as of September 30, 2026 and December 31, 2025:
|
| September 30, 2026 |
|
| December 31, 2025 |
| ||
Computers and electronic equipment |
| $ |
|
| $ |
| ||
Robots |
|
|
|
|
|
| ||
Furniture and fixtures |
|
|
|
|
|
| ||
Leasehold improvements |
|
|
|
|
|
| ||
Total property and equipment |
|
|
|
|
|
| ||
Less: accumulated depreciation |
|
| ( | ) |
|
| ( | ) |
Total property and equipment, net |
| $ |
|
| $ |
| ||
Depreciation expense was $
Note 4. Investment accounts
Investment accounts consist of cash and crypto assets held for investment purposes. Cash is carried at cost, which approximates fair value due to its short-term nature. The Company accounts for its crypto assets, which are currently primarily consisting of Solana and Worldcoin, as indefinite-lived intangible assets in accordance with ASC 350, Intangibles—Goodwill and Other and ASU 2023-08. The Company’s crypto assets are initially recorded at cost and subsequently are measured at fair value as of each reporting period. The Company determines the fair value of its crypto assets in accordance with ASC 820, Fair Value Measurement, based on quoted (unadjusted) prices on the Coinbase exchange, the active exchange that the Company has determined is its principal market for digital assets (Level 1 inputs). Changes in fair value are recognized in the Company’s consolidated statement of operations.
As of September 30, 2026 and December 31, 2025, digital assets with a fair value of $nil and $
| 13 |
| Table of Contents |
The following table summarizes the Company’s digital asset holdings, as of September 30, 2026 and December 31, 2025:
|
| September 30, 2026 |
|
| December 31, 2025 |
| ||
Number of Solana-purchased (restricted) |
|
|
|
|
|
| ||
Number of Solana- Staking rewards |
|
|
|
|
|
| ||
Number of World Coin purchased |
|
|
|
|
|
| ||
Number of World Coin - Staking rewards |
|
|
|
|
|
| ||
Number of Hyperliquid purchased |
|
|
|
|
|
| ||
Crypto asset purchased carrying value |
| $ |
|
| $ |
| ||
Staking rewards |
|
|
|
|
|
| ||
Unrealized gain (loss) on crypto assets |
|
|
|
|
| ( | ) | |
Total investment accounts |
| $ |
|
| $ |
| ||
Note 5. Intangible Assets
On June 30, 2025, the Company acquired certain intellectual property rights and trademarks (“IP”) with a fair value of $
| · | Cash consideration of $ |
| · | Issuance of |
| · | Issuance of warrants to purchase |
| ○ | Expected term: |
| ○ | Expected volatility: |
| ○ | Risk-free interest rate: |
| ○ | Dividend yield: |
The Company accounts for asset acquisitions in accordance with ASC 805-50, Business Combinations – Related Issues. An asset acquisition occurs when a transaction does not meet the definition of a business under ASC 805-10. In such cases, the total cost of the acquisition, including consideration transferred, transaction costs, and other directly attributable costs. No bargain purchase gain is recognized in an asset acquisition.
All equity securities issued in the transaction are subject to a six-month lock-up pursuant to a Lock-Up Agreement entered into on the same date. The acquired IP is recorded as an intangible asset and is being amortized over its estimated useful life of
During the year ended December 31, 2025, the Company identified indicators of impairment related to the IP. The Company performed a recoverability test by comparing the carrying amount of the IP to the estimated undiscounted future cash flows. As a result of this analysis, the Company determined that the carrying amount was not recoverable.
Accordingly, the Company recorded an impairment loss of $
| 14 |
| Table of Contents |
The fair value of the Company’s patented technology was determined in accordance with ASC 820 using an income approach, specifically the relief-from-royalty method. Under this method, the fair value was estimated based on the present value of projected future royalty savings attributable to the ownership of the patented technology.
The valuation incorporated significant assumptions, including forecasted revenues provided by management, royalty rates ranging from approximately
The fair value measurement is classified as Level 3 within the fair value hierarchy due to the use of significant unobservable inputs
As of December 31, 2025, the fair value of the patented technology was determined to be $
Following the impairment, the Company revised the remaining useful life and amortization of the intangible asset. Future amortization is expected to be as follows:
Year ended December 31, |
|
|
| |
2026 |
| $ |
| |
2027 |
|
|
| |
2028 |
|
|
| |
Remaining |
|
|
| |
Total |
| $ |
| |
Note 6. Leases
On November 1, 2022, the Company entered into an operating sublease with a related party Dream Go for its office space located at 450 7th Avenue, Suite 905, New York, NY 10123 expiring on October 31, 2029. On November 1, 2022, the Company recognized approximately $
As of September 30, 2026, the Company’s operating sublease had a remaining lease term of approximately
For the three and nine months ended September 30, 2026 and 2025, rent expense for the operating sublease was $
The Company’s sublease obligations as of September 30, 2026 are presented below:
Year ending December 31, |
|
|
| |
2026 |
| $ |
| |
2027 |
|
|
| |
2028 |
|
|
| |
Remaining |
|
|
| |
Total future lease payments |
|
|
| |
Less: Interest |
|
| ( | ) |
Present value of lease liabilities |
| $ |
| |
Future amortization of the Company’s ROU assets is presented below:
Year ended December 31, |
|
|
| |
2026 |
| $ |
| |
2027 |
|
|
| |
2028 |
|
|
| |
Remaining |
|
|
| |
Total |
| $ |
| |
| 15 |
| Table of Contents |
Subleases
On November 1, 2022, the Company entered into sublease agreements with related parties (1) Dream Legal Group, Inc., (2) Tigerless Health, Inc., and (3) First Cover, Inc. to sub rent portions of its office space located at 450 7th Avenue, Suite 905, New York, NY 10123. These subleases are month-to-month leases starting on November 1, 2022 and ending upon a notice of 30 days from either party.
On July 1, 2024, the Company terminated the subleases with Tigerless Health, Inc, and First Cover, Inc. Sublease income is recognized on the straight-line basis over the lease term. Billed and uncollected operating lease receivables will be included in due from related parties which are stated at their estimated net realizable value.
For the three months ended September 30, 2026 and 2025, the Company’s income from these subleases totaled $
Note 7. Accrued Liabilities and Other Payables
Accrued liabilities and other payables consisted of the following:
|
| September 30, 2026 |
|
| December 31, 2025 |
| ||
Credit card payable |
| $ |
|
| $ |
| ||
Payroll tax payable |
|
|
|
|
|
| ||
Total |
| $ |
|
| $ |
| ||
Note 8. Income Taxes
The Company had nil and $
|
| For the nine months ended September 30, |
| |||||
|
| 2026 |
|
| 2025 |
| ||
Deferred income tax expense |
| $ |
|
| $ |
| ||
Current income tax expense |
|
|
|
|
|
| ||
Total |
| $ |
|
| $ |
| ||
The Company has the following deferred tax assets (liabilities) as of September 30, 2026 and December 31 2025:
|
| As of September 30, 2026 |
|
| As of December 31, 2025 |
| ||
Net operating loss carryforwards |
| $ |
|
| $ |
| ||
Change in fair value of crypto assets |
|
| ( | ) |
|
|
| |
Change in fair value of convertible debt |
|
|
|
|
|
| ||
Impairment loss on intangible assets |
|
|
|
|
|
| ||
Other expense temporary difference |
|
|
|
|
|
| ||
Total deferred tax assets |
|
|
|
|
|
| ||
Deferred tax liability- Depreciation |
|
| ( | ) |
|
| ( | ) |
Allowance |
|
| ( | ) |
|
| ( | ) |
Net deferred tax liability |
| $ |
|
| $ |
| ||
| 16 |
| Table of Contents |
The Company evaluated the recoverable amounts of deferred tax assets, and provided a valuation allowance to the extent that future taxable profits will not be available against which the net operating loss and temporary differences can be utilized. A valuation allowance is provided against deferred tax assets when the Company determines that it is more likely than not that the deferred tax assets will not be utilized in the future. In making such determination, the Company considered factors including future taxable income exclusive of reversing temporary differences and tax loss carry forwards. The Company has provided a valuation allowance for the net deferred tax asset as it is not more likely than not that the asset will be realized.
The provision for income taxes differs from the amounts computed by applying the federal statutory rate as follows for the periods ended September 30, 2026 and 2025:
|
| September 30, 2026 |
|
| September 30, 2025 |
| ||
Federal statutory rate |
|
| % |
|
| % | ||
Deferred tax adjustment related to convertible debt conversion |
|
| ( | )% |
|
| - |
|
Deferred tax adjustment related to crypto asset exchange |
|
| ( | )% |
|
| - |
|
Non-deductible expense |
|
| ( | )% |
|
| - |
|
Valuation allowance |
|
| ( | )% |
|
| ( | )% |
|
|
|
|
|
|
|
|
|
Effective income tax rate |
|
| % |
|
| ( | )% | |
The effective tax rate for the nine months ended September 30, 2026 and 2025 is less than the statutory rate primarily as a result of the valuation allowance for net deferred tax assets.
No uncertain tax benefits have been recorded for the three and nine months ended September 30, 2026 and 2025.
On March 27, 2020, the “Coronavirus Aid, Relief and Economic Security (CARES) Act” (the “Act”) was signed into law. The Act includes provisions relating to refundable payroll tax credits, deferment of the employer portion of certain payroll taxes, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. The Company analyzed the provisions of the Act and determined there was no significant impact to its income taxes for the periods presented.
As of September 30, 2026, Classover NJ and Classover Holdings, Inc. has approximately $
The Company’s tax years 2023 and forward generally remain subject to examination by federal and state tax authorities.
| 17 |
| Table of Contents |
Note 9. Related parties
As of September 30, 2026 and 2025, The Company has related party transactions with the following affiliates and affiliated entities:
Related Party Name | Relationship | |
Hui Luo | Majority owner of the Company | |
Yi Liu | Spouse of Hui Luo | |
Dream Legal Group, Inc |
| An entity controlled by Hui Luo |
Dreamgo Inc. |
| An entity controlled by Hui Luo |
Due from related parties
|
| September 30, 2026 |
|
| December 31, 2025 |
| ||
|
|
|
|
|
|
| ||
Dream Legal Group, Inc. |
|
|
|
|
|
| ||
Total due from related parties |
| $ |
|
| $ |
| ||
Due to related parties
|
| September 30, 2026 |
|
| December 31, 2025 |
| ||
|
|
|
|
|
|
| ||
Due to Dream Go Inc. |
|
|
|
|
|
| ||
Total due to related parties - current |
| $ |
|
| $ |
| ||
The following table represents related party transactions for the three and nine months ended September 30, 2026 and 2025:
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||||
Name |
| Business Purpose of Transaction |
| 2026 |
|
| 2025 |
|
| 2026 |
|
| 2025 |
| ||||
Dream Legal Group, Inc |
| Sublease income |
| $ |
|
| $ |
|
|
|
|
| $ |
| ||||
Dreamgo Inc. |
| Rent expense |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Yi Liu |
| Interest expense |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Luo Hui |
| Interest expense |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Sublease income has been reflected as a reduction of general and administrative expenses in the accompanying consolidated statements of operations.
As of September 30, 2026 and December 31, 2025, the Company has the following ROU assets and operating lease liabilities recognized from related party under ASC 842 (Note 4):
|
|
|
| September 30, 2026 |
|
| December 31, 2025 |
| ||
Dreamgo Inc. |
| ROU assets |
| $ |
|
| $ |
| ||
Dreamgo Inc. |
| Short term obligation under operating leases |
| $ | ( | ) |
| $ | ( | ) |
Dreamgo Inc. |
| Long term obligation under operating leases |
| $ | ( | ) |
| $ | ( | ) |
| 18 |
| Table of Contents |
Note 10. Convertible notes
2025 Convertible Notes
On May 30, 2025, the Company entered into a Securities Purchase Agreement for up to an aggregate of $
The Notes will be convertible into Class B common stock of the Company at the option of the holder at an initial conversion price equal to 200% of the closing price of the Common Stock on the trading day immediately prior to the closing date, subject to adjustment as provided for in the Notes. Interest is payable under the notes at a rate of
First Convertible Notes Amendment
On May 28, 2026, the Company entered into the First Amendment to the Securities Purchase Agreement, which modified certain provisions of the Purchase Agreement and the form of the senior secured convertible notes. The amendment, among other things: 1) revised the use of proceeds for future Additional Closings to require proceeds to be deposited into the Control Account until the Company satisfies the Available Cash Test, after which remaining proceeds may be used for working capital or capital expenditures related to AI operations; 2) revised the Available Cash Test and certain definitions, including Permitted Indebtedness and Permitted Liens; 3) replaced the form of the Additional Notes with an amended form of Senior Secured Convertible Note; and 4) permitted the Company to continue its at-the-market equity program and ChEF Purchase Agreement subject to specified limitations.
In connection with the amendment, the Company completed an Additional Closing on May 28, 2026 and issued an additional Senior Secured Convertible Note with an aggregate principal amount of $600,000. The additional note bears interest at
Description of 2025 Convertible Note upon issuance:
Issue Date | |
Face Value | $ |
Maturity | |
Coupon | |
Conversion Price | Initially $ |
Floor Price | $ |
Redemption | |
Use of Proceeds |
Issue Date | |
Face Value | $ |
Maturity | |
Coupon | |
Conversion Price | Initially $ |
Floor Price | $ |
Redemption | |
Use of Proceeds |
| 19 |
| Table of Contents |
Issue Date | |
Face Value | $ |
Maturity | |
Coupon | |
Conversion Price | Initially $ |
Floor Price | $ |
Redemption | |
Use of Proceeds |
During the fourth quarter ended December 31, 2025, the Company converted an aggregate principal amount of $
During the three months ended March 31, 2026, the Company converted an aggregate principal amount of $
During the three months ended June 30, 2026, the Company converted an aggregate principal amount of $
The Company had elected the fair value option for the convertible notes in accordance with ASC 825-10, Financial Instruments. Accordingly, the convertible notes were measured at fair value at each reporting date, with changes in fair value recognized in earnings. At the conversion date, the equity instruments issued were measured based on the quoted market price of the Company’s common stock on the conversion date.
Immediately prior to conversion, the carrying value of the convertible notes approximated their fair value. As a result, the derecognition of the convertible notes and issuance of equity securities did not result in a material gain or loss upon conversion. The carrying value of the notes was reclassified to equity upon issuance of the shares.
The Company elected the fair value option (“FVO”) under ASC 825 for its senior secured convertible notes. Accordingly, the convertible notes are measured at fair value at each reporting date, with changes in fair value recognized in earnings within other income (expense), net.
| 20 |
| Table of Contents |
The fair value of the convertible notes was estimated using a lattice (binomial tree) model, which captures the hybrid nature of the instrument, including the embedded conversion feature, issuer redemption option, payment-in-kind (“PIK”) interest accretion, floor-price reset provisions, and contractual call premiums. The valuation incorporates market participant assumptions consistent with ASC 820 and is classified within Level 3 of the fair value hierarchy due to the use of significant unobservable inputs. As of September 30, 2026 and December 31, 2025, the aggregate contractual principal amount of the convertible notes was $
Level 3 Quantitative Inputs
The significant inputs used in the valuation as of September 30, 2026 and December 31, 2025 were as follows:
Input |
| September 30, 2026 |
|
| September 30, 2026 |
|
| December 31, 2025 |
| |||
Face value |
| $ |
|
| $ |
|
| $ |
| |||
Fair value |
| $ |
|
| $ |
|
| $ |
| |||
Volatility |
|
| % |
|
| % |
|
| % | |||
Risk-free rate |
|
| % |
|
| % |
|
| % | |||
Calibrated spread |
|
| % |
|
| % |
|
|
|
| ||
Remaining contractual term |
|
|
|
|
|
| ||||||
PIK interest rate |
|
| % |
|
| % |
|
| % | |||
Stock price |
| $ |
|
| $ |
|
| $ |
| |||
Conversion price (effective) |
| $ |
|
| $ |
|
| $ |
| |||
Conversion price (floor) |
| $ |
|
| $ |
|
| $ |
| |||
Redemption premium |
|
| % |
|
| % |
|
| % | |||
*At September 30, 2026, the contractual floor price applied to share reserve and certain adjustment provisions and did not establish a minimum conversion price.
The Company applied a contractual floor conversion price of $
The Company used an effective conversion price of $
Based on the sensitivity analysis performed as of December 31, 2025, a hypothetical
| 21 |
| Table of Contents |
The following table summarizes the changes in the fair value of the Company’s convertible notes classified within Level 3 of the fair value hierarchy:
Fair value at December 31, 2024 |
|
|
| |
Initial recognition at principal amount |
|
|
| |
Changes in fair value recognized in earnings |
|
|
| |
Conversion into common and preferred stock |
|
| ( | ) |
Fair value at December 31, 2025 |
|
|
| |
Changes in fair value recognized in earnings |
|
|
| |
Conversion into common stock |
|
| ( | ) |
Fair value at March 31, 2026 |
|
|
| |
Changes in fair value recognized in earnings |
|
|
| |
Conversion into common stock |
|
| ( | ) |
Initial recognition at principal amount |
|
|
| |
Fair value at June 30, 2026 |
|
|
| |
Initial recognition at principal amount |
|
|
| |
Changes in fair value recognized in earnings |
|
|
| |
Fair value at September 30, 2026 |
|
|
|
Note 11. Warrant Liabilities
In connection with the Reorganization Merger, the Company has assumed
Each whole warrant entitles the holder to purchase
The Company may redeem the warrants at a price of $
| 22 |
| Table of Contents |
The Company accounts for the outstanding warrants issued in connection with the Public Offering of BFAC in accordance with the guidance contained in ASC 815-40. Such guidance provides that because the warrants do not meet the criteria for equity treatment thereunder, each warrant must be recorded as a liability. Accordingly, the Company classifies each warrant as a liability at its fair value. This liability is subject to remeasurement at each condensed balance sheet date. With each such remeasurement, the warrant liability will be adjusted to fair value, with the change in fair value recognized in the Company’s unaudited condensed statements of operations.
The following table presents the changes in the fair value of warrant liabilities:
Fair value as of December 31, 2025 |
| $ |
| |
Change in fair value |
|
| ( | ) |
Fair value as of September 30, 2026 |
| $ |
|
Note 12. Recurring fair value measurements
Fair value is defined as the price that would be received for sale of an asset or paid for transfer of a liability in an orderly transaction between market participants at the measurement date. U.S. GAAP (as defined in Note 2) establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). These tiers consist of:
| · | Level 1, defined as observable inputs such as quoted prices (unadjusted) for identical instruments in active markets; |
|
|
|
| · | Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and |
|
|
|
| · | Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. |
The following tables present fair value information as of September 30, 2026, the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis and indicate the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value:
September 30, 2026 |
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| |||
Assets: |
|
|
|
|
|
|
|
|
| |||
Investment- Crypto asset |
| $ |
|
| $ |
|
| $ |
| |||
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Warrant liabilities |
| $ |
|
| $ |
|
| $ |
| |||
Convertible notes payable |
| $ |
|
| $ |
|
| $ |
| |||
December 31, 2025 |
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| |||
Assets: |
|
|
|
|
|
|
|
|
| |||
Investment- Crypto asset |
| $ |
|
| $ |
|
| $ |
| |||
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Warrant liabilities |
| $ |
|
| $ |
|
| $ |
| |||
Convertible notes payable |
| $ |
|
| $ |
|
| $ |
| |||
| 23 |
| Table of Contents |
Note 13. Segment information and revenue analysis
The Company follows ASC 280, Segment Reporting, which requires that companies disclose segment data based on how management makes decisions about allocating resources to each segment and evaluating their performances. The Company has one reporting segment. The Company’s chief operating decision maker has been identified as the chief executive officer, who reviews consolidated results when making decisions about allocating resources and assessing performance of the Company and hence the Company has only one reportable segment. The Company does not distinguish between markets or segments for the purpose of internal reporting.
Disaggregated information of revenues by stream are as follows:
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30, 2026 |
|
| September 30, 2025 |
|
| September 30, 2026 |
|
| September 30, 2025 |
| ||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Time-based subscriptions |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Credit-based subscriptions |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Total revenues |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Note 14. Commitments and Contingencies
Legal Proceedings
The Company may be involved in various claims and legal actions arising in the ordinary course of business. The Company establishes an accrued liability for legal proceedings only when those matters present loss contingencies that are both probable and reasonably estimable. At September 30, 2026, the Company was not involved in any material legal proceedings regarding claims or legal actions against the Company.
Note 15. Equity
As of June 4, 2026, the total number of shares which the Company shall have the authority to issue is
The Preferred Stock authorized by this Certificate of Incorporation may be issued in series. Each Series A Preferred Shares are convertible to Class B Common Shares on a 50 to 1 basis , Each Series B and Series C Preferred Shares are convertible to Class B Common Shares. The conversion price of Series B Preferred Shares are the greater of 92% of the lowest Volume Weighted Average Price (“VWAP”) of the stock price five days before conversion, or adjusted floor price. The conversion price of Series C Preferred Shares are the lower of 95% of the lowest VWAP of the stock price six days before conversion, or initial conversion price. Holders of shares of Common Stock will exclusively possess all voting power with respect to the Company and are entitled to vote on all matters submitted to the Company’s stockholders for their vote or approval. Each share of Class A Common Stock has the voting power of twenty-five votes and each share of Class B Common Stock has the voting power of one vote.
| 24 |
| Table of Contents |
On June 10, 2026, the Company’s stockholders approved an amendment to the Certificate of Incorporation to increase the authorized number of shares of Class B Common Stock to
On September 10, 2026, the Company’s stockholders approved an amendment to the Certificate of Incorporation to increase the authorized number of shares of Class A Common Stock to
Accordingly, as of September 30, 2026, the Company had a total of
Reverse Recapitalization and De-SPAC Merger
On April 4, 2025, the Company consummated a business combination with Classover DE and BFAC (the SPAC), resulting in a reverse recapitalization. As part of the transaction:
| · | Former Classover DE shareholders received | |
|
| ○ | |
|
| ○ | |
|
| ○ | |
|
| ○ | |
| · | BFAC Sponsor received 1,280 shares of Class B Common Stock (reflecting the March 2026 50-for-1 reverse stock split, the June 2026 10-for-1 and the August 15-for-1 reverse stock split; | |
| · | Remaining BFAC IPO investors were issued | |
| · | ||
These equity issuances were part of the reverse recapitalization and accounted for in accordance with ASC 805-40. No goodwill or intangible assets were recorded. The conversion of convertible notes was accounted for in accordance with ASC 470-20, with no gain or loss recognized upon conversion.
Shares issued in connection with the Company’s Merger on April, 4, 2025:
|
| Common Share- reflecting the March 2026, June 2026 and August 2026 reverse stock split |
|
| Common Share- on a pre-split basis |
| ||
|
|
|
|
|
|
| ||
Holders of BFAC public shareholders – Class B |
|
|
|
|
|
| ||
BFAC sponsors – Class B |
|
|
|
|
|
| ||
Founder of Classover DE – Class A |
|
|
|
|
|
| ||
Rest of Classover DE shareholders prior to merger – Class B |
|
|
|
|
|
| ||
Convertible note holders of Classover Inc. prior to merger – Class B |
|
|
|
|
|
| ||
Classover DE equity holders-Series A Preferred Shares |
|
|
|
|
|
| ||
Total Class A common shares |
|
|
|
|
|
| ||
Total Class B common shares |
|
|
|
|
|
| ||
Total Series A Preferred Shares |
|
|
|
|
|
| ||
| 25 |
| Table of Contents |
PIPE Investment
On April 4 and April 14, 2025, a PIPE investor invested $
2024 Incentive Plan
In connection with the Reorganization Merger, the Company adopted the Equity Incentive Plan (the “2024 Incentive Plan”). The 2024 Incentive Plan will provide for grants of stock options, stock appreciation rights, restricted stock, restricted stock units, and other stock or equity-related cash-based awards. Directors, officers and other employees of the Company and its subsidiaries, as well as others performing consulting or advisory services for the Company, will be eligible for grants under the 2024 Incentive Plan.
The 2024 Incentive Plan provides for the future issuance of shares of the Company’s Class B Common Stock, representing 8% of the number of shares of the Company’s Common Stock outstanding following the Business Combination (after giving effect to the Redemption).
| · | On April 17, 2025, |
| · | On April 28, 2025, |
| · | On September 6, 2025, |
| · | On October 28, 2025, |
| · | On October 31, 2025, |
| · | On January 21, 2026, |
| 26 |
| Table of Contents |
2025 Incentive Plan
| · |
Shares were measured at fair value on grant date under ASC 718. Compensation cost is recognized ratably over the vesting period. For the three and nine months ended September 30, 2026, stock compensation cost under 2024 and 2025 inventive plan was $
At-the-Market Equity Offering
In May 2026, the Company entered into an At-the-Market Equity Offering Sales Agreement (the "ATM Sales Agreement") with Chardan Capital Markets LLC, pursuant to which the Company may offer and sell shares of its Class B common stock from time to time through the sales agent in accordance with the terms of the Sales Agreement and the applicable registration statement. Under the ATM Sales Agreement, the Company pays the sales agent a commission based on the gross sales price of shares sold, together with reimbursement of certain offering expenses.
During the three months ended June 30, 2026, the Company sold an aggregate of
During the three months ended September 30, 2026, the Company sold an aggregate of
Equity Line of Credit
On May 21, 2026, the Company entered into a ChEF Purchase Agreement (the “Purchase Agreement”) with Chardan Capital Markets LLC (“Chardan”), establishing an equity line of credit facility. Under the Purchase Agreement, the Company has the right, but not the obligation, to issue and sell to Chardan up to $
During the three months ended September 30, 2026, the Company issued and sold 5,366 shares of Class B Common Stock under the Purchase Agreement for aggregate proceeds of $16,076. The share amount reflects the reverse stock split effective August 13, 2026.
Other equity transactions
On April 17, 2025, 25 shares (reflecting the March 2026 50-for-1 reverse stock split , the June 2026 10-for-1 and the August 2026 15-for-1 reverse stock split;
| 27 |
| Table of Contents |
On June 30, 2025, the Company acquired intellectual property using $
On December 22, 2025, the company's shareholders approved a few proposals through a special meeting: a). redomesticate the company from Delaware Corporation to Nevada Corporation, b) adopt the new incentive plan -
During the fourth quarter ended December 31, 2025, the Company converted an aggregate principal amount of $
During the fourth quarter ended December 31, 2025, the Company received several conversion notices from a holder of its Series B Convertible Preferred Stock to convert
During the three months ended March 31, 2026,
| 28 |
| Table of Contents |
During the three months ended March 31, 2026,
On March 6, 2026, the Company terminated an Equity Purchase Facility Agreement (the “EPFA”) with Solana Strategic Holdings LLC (the “Investor”) pursuant to which, subject to certain conditions precedent contained therein, the Company had the right to issue and sell to the Investor up to an aggregate of $
In April and May 2026, the Company converted an aggregate principal amount of $
In April 2026, the Company received several conversion notices from a holder of its Series B Convertible Preferred Stock to convert
In June 2026, the Company received several conversion notices from a holder of its Series C Convertible Preferred Stock to convert
During the three months ended September 30, 2026, the Company received several conversion notices from a holder of its Series C Convertible Preferred Stock to convert
Treasury Stock
On February 10, 2026, the Company's board authorized to repurchase up to $
The Company accounts for treasury stock using the cost method. Under the cost method, shares repurchased are recorded as treasury stock at the cost of acquisition and presented as a reduction of stockholders' equity in the accompanying consolidated balance sheets.
| 29 |
| Table of Contents |
In June 2026, the Company repurchased
Note 16. Concentration of risk
Credit risk
The Company’s concentration of credit risk relates to financial institutions holding the Company’s cash. The Company maintains cash deposits with financial institutions that may exceed federally insured limits at times. The insurance coverage for cash deposits at each bank is $
Customer concentration risk
For the three and nine months ended September 30, 2026 and 2025, no customer accounted for more than
Vendor concentration risk
For the three and nine months ended September 30, 2026 and 2025, no vendor accounted for over
Note 17. Subsequent Event
The Company evaluated subsequent events through the date these unaudited interim condensed consolidated financial statements were issued and identified no events requiring adjustment to or disclosure in these financial statements.
| 30 |
| Table of Contents |
Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations
References to the “Company,” “our,” “us” or “we” refer to KIDZ AI Inc. The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the unaudited financial statements and the notes related thereto. Certain information contained in the discussion and analysis set forth below includes forward-looking statements. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
We are an online enrichment class platform that offers over 20 courses taught by experienced, independent educators. Our program caters to children aged 4 to 17, providing personalized attention and a supportive learning environment. Unlike traditional classes, we give students the unique opportunity to explore their interest in-depth via interactive, live streaming courses with flexible time slots.
For the three-month period, our total revenue decreased by $612,481, or 48%, from $1,287,638 for the three months ended September 30, 2025, to $675,157 for the three months ended September 30, 2026. Our gross profit decreased by $454,260, from $899,024 for the three months ended September 30, 2025, to $444,764 for the three months ended September 30, 2026. Our gross profit margin decreased by 4% from 70% for the three months ended September 30, 2025 to 66% for the three months ended September 30, 2026.
For the nine-month period, our total revenue decreased by $1,153,116, or 41% from $2,829,302 for the nine months ended September 30, 2025, to $1,676,186 for the nine months ended September 30, 2026. Our gross profit decreased by $709,724, from $1,627,108 for the nine months ended September 30, 2025, to $917,384 for the nine months ended September 30, 2026. Our gross profit margin decreased by 3% from 58% for the nine months ended September 30, 2025 to 55% for the nine months ended September 30, 2026.
Business Model
We understand that it is easier to learn when students are interested, so we highlight variety in our business model. Our platform offers a wide breadth of affordable enrichment programs including language, science, technology, engineering, arts, mathematics, music, and many more. Since our platform handles enrollments, record keeping, and many other administrative tasks that usually take up educators’ time, our educator can focus on sharing knowledge about topics they love with our students.
We analyze data gathered on our platform to better determine our students’ most relevant education needs, helping us match them with relevant courses and learning paths, thereby driving higher customer satisfaction. Once a learner enrolls in a course, we strive to provide an effective learning experience through tutoring, assessments, Q&As, and interactive sessions.
We provide time-based subscriptions and credit-based subscriptions to our online courses. For time-based subscriptions, we provide students with unlimited access to our courses for a specified period of time. For credit-based subscriptions, we offer our students the flexibility to take courses at any time up to the limit of their prepaid balance.
Key Factors Affecting Our Performance
Our results of operations and financial condition have been, and will continue to be, affected by a number of factors that present significant opportunities for us but also pose risks and challenges, including those discussed below and elsewhere in the Form 10-Q.
| 31 |
| Table of Contents |
Ability to attract new registered users and paid subscribers
Our business model is dependent upon our ability to grow and maintain a large user base, and it also requires that we grow and keep registered users and paid subscribers. As of September 30, 2026 and 2025, we have 75,999 and 71,556 registered users, respectively.
"Registered users" are individuals who have signed up and created an account on our platform. This group includes all users who access our services, regardless of whether they have made a financial commitment to our offerings. Registered users may take advantage of free trials, access limited content, or use basic features available at no cost. While registered users do not directly contribute to subscription revenue, they play a crucial role in the overall revenue strategy by expanding the potential market. They provide a pool of potential customers who can be converted into paying customers through targeted marketing and engagement strategies. Additionally, registered users might generate revenue through advertisements, in-app purchases, or by upgrading to paid plans.
"Paid subscribers," on the other hand, include those registered users who have opted for a subscription plan and have made a financial commitment to access our premium content and features. Paid subscribers also encompass customers who purchase lesson credit packages, allowing them to access specific lessons or courses without committing to a recurring subscription. These subscribers typically pay either a recurring fee, which can be monthly, quarterly, or annually, depending on the subscription model, or a one-time fee for lesson credit packages. Paid subscribers are the primary source of revenue for the Company. The consistent and recurring nature of subscription payments ensures a steady revenue stream, while lesson credit packages offer flexibility and contribute additional non-recurring revenue. This combination supports the Company's operational costs, development, and expansion plans.
Ability to retain existing paid subscribers and customer relationships
Our ability to increase our revenues and profitability will depend on the ability to retain our existing customers as well as to convert registered users to paid subscribers.
Ability to attract and retain high quality independent teacher contractors
We believe that students are attracted to us largely because of the high quality and wide selection of enrichment and academic lessons offered by our high quality independent teacher contractors, and that continuing to attract and retain many high quality educator partners will be an important factor in attracting registered users and paid subscribers and increasing our revenue over time. We believe that our reach, reputation, and compensation packages provide an attractive value proposition for educators to partner with us to develop and distribute enrichment content. To be the platform of choice for educator partners, we continue to invest in increasing the size and engagement of our user base, improving recommendation and personalization features, and developing marketing capabilities that drive higher conversions. As of September 30, 2026 and 2025, we have 1,295 and 1,144 educator partners working with us, respectively.
Operating Efficiency
Our ability to maintain and increase profitability also depends on our ability to effectively control our costs and expenses. The significant component of our cost of revenues is the compensation expense to our educators. We pay our educators based on the number of hours they teach. In addition, we initiated time limit on certain courses, which encouraged students to pick courses in a shorter period of time, which also lead to an increase in the number of students in each class. However, to ensure quality of our online courses, we generally maintain a student to teacher ratio within 6:1.
Key Components of Results of Operations
Revenues
We have two predominant sources of revenue: (i) time-based subscriptions, (ii) credit-based subscriptions to our online courses. Customers are required to pay in advance to enroll for courses.
| 32 |
| Table of Contents |
Cost of revenues
Cost of revenue consists of streaming services, third-party payment processing fees, and compensation for teachers and certain employees.
Selling expenses
Selling expenses consist primarily of sales personnel compensation, followed by advertising costs on social media platforms such as Google.
General and administrative expenses
General and administrative expenses consist primarily of (i) compensation for our management and administrative personnel, (ii) expenses in connection with operation supporting functions such as legal, accounting, consulting, and other professional service fees, and (iii) office rental, depreciation, and other administrative related expenses.
Research and Development Expenses
Research and development expenses are expensed as incurred and include compensation-related expenses to the outsourced subcontractors for maintenance of our online learning platform and ongoing investments in AI-related product development.
Results of Operations
For the three months ended September 30, 2026 and 2025
The following table summarizes our results of operations for the periods presented. The results below are not necessarily indicative of results to be expected for future periods.
| 33 |
| Table of Contents |
|
| For the Three Months Ended September 30, |
|
| Variance |
|
|
| ||||||||
|
| 2026 |
|
| 2025 |
|
| Amount |
|
| Variance % |
| ||||
|
| (Unaudited) |
|
| (Unaudited) |
|
|
|
|
| ||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Service revenues |
| $ | 675,157 |
|
| $ | 1,287,638 |
|
| $ | (612,481 | ) |
|
| (48 | )% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
| 675,157 |
|
|
| 1,287,638 |
|
|
| (612,481 | ) |
|
| (48 | )% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues |
|
| 230,393 |
|
|
| 388,614 |
|
|
| (158,221 | ) |
|
| (41 | )% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues |
|
| 230,393 |
|
|
| 388,614 |
|
|
| (158,221 | ) |
|
| (41 | )% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
| 444,764 |
|
|
| 899,024 |
|
|
| (454,260 | ) |
|
| (51 | )% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and marketing |
|
| 62,835 |
|
|
| 149,249 |
|
|
| (86,414 | ) |
|
| (58 | )% |
General and administrative |
|
| 1,138,348 |
|
|
| 1,348,697 |
|
|
| (210,349 | ) |
|
| (16 | )% |
Research and development |
|
| 16,002 |
|
|
| 5,971 |
|
|
| 10,031 |
|
|
| 168 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
| 1,217,185 |
|
|
| 1,503,917 |
|
|
| (286,732 | ) |
|
| (19 | )% |
|
|
| - |
|
|
| - |
|
|
|
|
|
|
|
|
|
(Loss) from operations |
|
| (772,421 | ) |
|
| (604,893 | ) |
|
| (167,528 | ) |
|
| 28 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of warrants |
|
| 77,625 |
|
|
| 910,799 |
|
|
| (833,174 | ) |
|
| (91 | )% |
Change in fair value of crypto assets |
|
| 8,829 |
|
|
| 3,159,986 |
|
|
| (3,151,157 | ) |
|
| (100 | )% |
Change in fair value of convertible debt |
|
| (6,460 | ) |
|
| (249,508 | ) |
|
| 243,048 |
|
|
| (97 | )% |
Staking rewards |
|
| 994 |
|
|
| 157,405 |
|
|
| (156,411 | ) |
|
| (99 | )% |
Interest and other expense |
|
| 37,376 |
|
|
| (189,203 | ) |
|
| 226,579 |
|
|
| (120 | )% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense) |
|
| 118,364 |
|
|
| 3,789,479 |
|
|
| (3,671,115 | ) |
|
| (97 | )% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) before provision for income taxes |
|
| (654,057 | ) |
|
| 3,184,586 |
|
|
| (3,838,643 | ) |
|
| (121 | )% |
Provision for income taxes |
|
| - |
|
|
| 663,597 |
|
|
| (663,597 | ) |
|
| (100 | )% |
|
|
| - |
|
|
| - |
|
|
|
|
|
|
|
|
|
Net (loss) |
| $ | (654,057 | ) |
| $ | 2,520,989 |
|
| $ | (3,175,046 | ) |
|
| (126 | )% |
Revenue
Our total revenue decreased by $612,481, or 48% from $1,287,638 for the three months ended September 30, 2025, to $675,157 for the three months ended September 30, 2026. The decrease was primarily attributable to reduced customer traffic and lower user engagement on the Company’s platform during the quarter, which resulted in decreased demand for both credit-based course purchases and pass subscription products. During this period, management devoted greater operational focus and resources to public company compliance, treasury management, and strategic initiatives, including AI-related projects and the Company's broader AI-driven strategic transformation. Management believes these efforts may support the Company's long-term growth and the continued development of its AI-powered education initiatives.
| 34 |
| Table of Contents |
Costs of Revenue
|
| For the Three Months Ended September 30, |
|
| Variance |
|
| Variance |
| |||||||
|
| 2026 |
|
| 2025 |
|
| Amount |
|
| % |
| ||||
|
| (Unaudited) |
|
| (Unaudited) |
|
|
|
|
| ||||||
Compensation |
| $ | 210,910 |
|
| $ | 360,130 |
|
|
| (149,220 | ) |
|
| (41 | )% |
Payment Processing Fee |
|
| 9,183 |
|
|
| 11,084 |
|
|
| (1,901 | ) |
|
| (17 | )% |
Streaming Services |
|
| 10,300 |
|
|
| 17,400 |
|
|
| (7,100 | ) |
|
| (41 | )% |
Total |
| $ | 230,393 |
|
| $ | 388,614 |
|
| $ | (158,221 | ) |
|
| (41 | )% |
Cost of revenues decreased by $158,221, or 41%, from $388,614 for the three months ended September 30, 2025, to $230,393 for the three months ended September 30, 2026.
The decrease in cost of revenues was primarily attributable to lower compensation expenses for independent educators and employees directly involved in providing services and was generally consistent with the decrease in revenues. Compensation expenses decreased by $149,220, or 41%, from $360,130 for the three months ended September 30, 2025, to $210,910 for the three months ended September 30, 2026.
Gross profit margin
|
| For the Three Months Ended September 30, |
|
|
| |||||||
|
| 2026 |
|
| 2025 |
|
| Variance |
| |||
|
| (Unaudited) |
|
| (Unaudited) |
|
|
| ||||
Service revenues |
|
|
|
|
|
|
|
|
| |||
Gross profit |
|
| 444,764 |
|
|
| 899,024 |
|
|
| (454,260 | ) |
Gross margin |
|
| 66 | % |
|
| 70 | % |
|
| 4 | % |
The total gross profit decreased by $454,260, or 51%, from $899,024 for the three months ended September 30, 2025 to $444,764 for the three months ended September 2026. Gross profit margin decreased from approximately 70% for the three months ended September 30, 2025, to approximately 66% for the three months ended September 30, 2026, primarily because the decrease in revenues outpaced the reduction in cost of revenues.
Operating expenses
During the three months ended September 30, 2026, we incurred total operating expenses of $1,217,185, a decrease of $286,732, or 19%, as compared to total operating expenses of $1,503,917 during the three months ended September 30, 2025.
General and administrative expenses decreased by $210,349, or 16%, from $1,348,697 for the three months ended September 30, 2025, to $1,138,348 for the three months ended September 30, 2026. Our general and administrative expenses include compensation related to the administrative personnel, amortization and depreciation expenses, rent, and other general expenses. The decrease in general and administrative expenses in the three months ended September 30, 2026 as compared to same period last year was primarily attributable to a decrease of $292,199 in compensation and $38,440 in amortization expenses related to our IP assets. The decrease was primarily offset by an increase of $109,486 in vehicle, travel and insurance expenses. Insurance expenses increased due to periodic reviews and updates to the Company's insurance coverage, while vehicle and travel expenses increased primarily due to employee business travel related to AI business development and attendance at industry conferences. The decrease in employee compensation expenses was primarily attributable to a reduction in headcount and salary levels across the Company's operations, as well as lower outsourced staffing costs.
| 35 |
| Table of Contents |
Selling expenses decreased by $86,414 or 58% from $149,249 for the three months ended September 30, 2025 to $62,835 for the three months ended September 30, 2026. The decrease was primarily attributable to lower compensation expense, which decreased by $89,222, primarily due to reduced headcount and lower sales commissions, consistent with lower student enrollment and revenue. This decrease was partially offset by an increase of $2,808 in advertising expenses.
Other income
Other income for the three months ended September 30, 2026, was $118,364 as compared to $3,789,479 for the three months ended September 30, 2025. The decrease in other income was primarily attributable to a decrease of $3,151,157 in fair value of crypto assets, a decrease of $833,174 in fair value of warrants and a decrease of $156,411 on staking rewards., The decreases were partially offset by an increase of $243,048 and $226,579 in fair value of convertible debt and interest, respectively.
Provision for income taxes
We had no income tax provision for the three months ended September 30, 2026 as we made fully allowance on the deferred tax assets as we have determined that it is not more likely than not that the assets will be realized. Provision for income taxes for the three months ended September 30, 2025 was $663,597.
Net Loss
As a result of the combination of factors discussed above, we recorded a net loss of $654,057 for the three months ended September 30, 2026, compared to net income of $2,520,989 for the corresponding period in 2025.
| 36 |
| Table of Contents |
For the nine months ended September 30, 2026 and 2025
The following table summarizes our results of operations for the periods presented. The results below are not necessarily indicative of results to be expected for future periods.
|
| For the Nine Months Ended September 30, |
|
| Variance |
|
| Variance |
| |||||||
|
| 2026 |
|
| 2025 |
|
| Amount |
|
| % |
| ||||
|
| (Unaudited) |
|
| (Unaudited) |
|
|
|
|
|
|
| ||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Service revenues |
| $ | 1,676,186 |
|
| $ | 2,829,302 |
|
| $ | (1,153,116 | ) |
|
| (41 | )% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
| 1,676,186 |
|
|
| 2,829,302 |
|
|
| (1,153,116 | ) |
|
| (41 | )% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues |
|
| 758,802 |
|
|
| 1,202,194 |
|
|
| (443,392 | ) |
|
| (37 | )% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues |
|
| 758,802 |
|
|
| 1,202,194 |
|
|
| (443,392 | ) |
|
| (37 | )% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
| 917,384 |
|
|
| 1,627,108 |
|
|
| (709,724 | ) |
|
| (44 | )% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and marketing |
|
| 162,382 |
|
|
| 380,761 |
|
|
| (218,379 | ) |
|
| (57 | )% |
General and administrative |
|
| 3,502,451 |
|
|
| 3,811,411 |
|
|
| (308,960 | ) |
|
| (8 | )% |
Research and development |
|
| 68,093 |
|
|
| 34,769 |
|
|
| 33,324 |
|
|
| 96 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
| 3,732,926 |
|
|
| 4,226,941 |
|
|
| (494,015 | ) |
|
| (12 | )% |
|
|
| - |
|
|
| - |
|
|
|
|
|
|
|
|
|
(Loss) from operations |
|
| (2,815,542 | ) |
|
| (2,599,833 | ) |
|
| (215,709 | ) |
|
| 8 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of warrants |
|
| 67,275 |
|
|
| (629,625 | ) |
|
| 696,900 |
|
|
| (111 | )% |
Change in fair value of crypto assets |
|
| (3,380,547 | ) |
|
| 3,342,651 |
|
|
| (6,723,198 | ) |
|
| (201 | )% |
Change in fair value of convertible debt |
|
| (1,331,562 | ) |
|
| (510,138 | ) |
|
| (821,424 | ) |
|
| 161 | % |
Financing cost |
|
| - |
|
|
| (473,500 | ) |
|
| 473,500 |
|
|
| (100 | )% |
Staking rewards |
|
| 92,992 |
|
|
| 163,953 |
|
|
| (70,961 | ) |
|
| (43 | )% |
Interest and other expense |
|
| 29,719 |
|
|
| (233,938 | ) |
|
| 263,657 |
|
|
| (113 | )% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense) |
|
| (4,522,123 | ) |
|
| 1,659,403 |
|
|
| (6,181,526 | ) |
|
| (373 | )% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) before provision for income taxes |
|
| (7,337,665 | ) |
|
| (940,430 | ) |
|
| (6,397,235 | ) |
|
| 680 | % |
Provision for income taxes |
|
| - |
|
|
| 701,957 |
|
|
| (701,957 | ) |
|
| (100 | )% |
|
|
| - |
|
|
| - |
|
|
|
|
|
|
|
|
|
Net (loss) |
| $ | (7,337,665 | ) |
| $ | (1,642,387 | ) |
| $ | (5,695,278 | ) |
|
| 347 | % |
Revenue
Our total revenue decreased by $1,153,116, or 41% from $2,829,302 for the nine months ended September 30, 2025, to $1,676,186 for the nine months ended September 30, 2026. The decrease was primarily attributable to reduced customer traffic and lower user engagement on the Company’s platform during the period, which resulted in decreased demand for both credit-based course purchases and pass subscription products. During this period, management devoted greater operational focus and resources to public company compliance, treasury management, and strategic initiatives, including AI-related projects and the Company's broader AI-driven strategic transformation. Management believes these efforts may support the Company's long-term growth and the continued development of its AI-powered education initiatives.
Cost of revenue
|
| For the Nine Months Ended September 30, |
|
| Variance |
|
| Variance |
| |||||||
|
| 2026 |
|
| 2025 |
|
| Amount |
|
| % |
| ||||
|
| (Unaudited) |
|
| (Unaudited) |
|
|
|
|
|
|
| ||||
Compensation |
| $ | 698,519 |
|
| $ | 1,103,387 |
|
|
| (404,868 | ) |
|
| (37 | )% |
Payment Processing Fee |
|
| 25,583 |
|
|
| 41,058 |
|
|
| (15,475 | ) |
|
| (38 | )% |
Streaming Services |
|
| 34,700 |
|
|
| 57,750 |
|
|
| (23,050 | ) |
|
| (40 | )% |
Total |
| $ | 758,802 |
|
| $ | 1,202,194 |
|
| $ | (443,392 | ) |
|
| (37 | )% |
Cost of revenues decreased by $443,392, or 37%, from $1,202,194 for the nine months ended September 30, 2025, to $758,802 for the nine months ended September 30, 2026.
| 37 |
| Table of Contents |
The decrease in cost of revenues was primarily attributable to a $404,868 reduction in compensation expenses for independent educators and employees directly involved in providing services, together with lower payment processing fees and streaming service costs, reflecting reduced customer activity and sales volume during the period. Compensation expenses for independent educators and employees directly involved in providing services decreased by $404,868, or 37%, from $1,103,387 for the nine months ended September 30, 2025, to $698,519 for the nine months ended September 30, 2026.
Gross profit margin
|
| For the Nine Months Ended September 30, |
|
|
|
| ||||||
|
| 2026 |
|
| 2025 |
|
| Variance |
| |||
|
| (Unaudited) |
|
| (Unaudited) |
|
|
|
| |||
Service revenues |
|
|
|
|
|
|
|
|
| |||
Gross profit |
|
| 917,384 |
|
|
| 1,627,108 |
|
|
| (709,724 | ) |
Gross margin |
|
| 55 | % |
|
| 58 | % |
|
| (3 | )% |
The total gross profit decreased by $709,724, or 44%, from $1,627,108 for the nine months ended September 30, 2025 to $917,384 for the nine months ended September 2026. Gross profit margin decreased from approximately 58% to 55%, as the decline in revenues outpaced the reduction in cost of revenues.
Operating expenses
During the nine months ended September 30, 2026, we incurred total operating expenses of $3,732,926, a decrease of $494,015, or 12%, as compared to total operating expenses of $4,226,941 during the nine months ended September 30, 2025.
General and administrative expenses decreased by $308,960, or 8%, from $3,811,411 for the nine months ended September 30, 2025, to $3,502,451 for the nine months ended September 30, 2026. Our general and administrative expenses include compensation related to the administrative personnel, amortization and depreciation expenses, rent, and other general expenses. The decrease in general and administrative expenses in the nine months ended September 30, 2026 as compared to same period last year was primarily attributable to a decrease of $653,923 in professional expenses and $229,843 in compensation expenses. The decrease was partially offset by an increase of $224,930 in stock compensation to management, and an increase of $173,455 in amortization expenses related to our IP assets.
Our professional expenses decreased by $653,923 from $1,334,514 for the nine months ended September 30, 2025, to $680,591 for the nine months ended September 30, 2026. The decrease was primarily attributable to lower professional fees as we completed a merger with Battery Future Acquisition Corp. (“BFAC”) and became a public listed company.
Employee compensation expenses in general administrative expenses decreased by $229,843from $1,471,079 for the nine months ended September 30, 2025, to $1,241,236 for the nine months ended September 30, 2026. The decrease was primarily attributable to a reduction in headcount and salary levels across the Company's operations, as well as lower outsourced staffing costs. These reductions were partially offset by higher US-based employee payroll expenses, reflecting the Company's expanded corporate and compliance infrastructure following its 2025 listing.
In addition, employee stock compensation increased by $224,930 from $311,620 for the nine months ended September 30, 2025 to $536,550 for the nine months ended September 30, 2026.
| 38 |
| Table of Contents |
Our insurance and travel expenses increased by $42,100 and $72,951 from $113,210 and $24,255 for the nine months ended September 30, 2025 to $155,310 and $97,206 for the nine months ended September 30, 2026, respectively. The insurance expenses increased due to periodic reviews and updates to the Company's insurance coverage, while travel expenses increased primarily due to employee business travel related to AI business development and attendance at industry conferences.
Amortization and depreciation expenses increased by $166,335 from $193,053 for the nine months ended September 30, 2025, to $359,388 for the nine months ended September 30, 2026. The increase was primarily attributable to higher amortization expenses associated with the Company's intangible assets.
Selling expenses decreased by $218,379 or 57% from $380,761 for the nine months ended September 30, 2025 to $162,382 for the nine months ended September 30, 2026. The decrease was primarily attributable to lower compensation expense, which decreased by $226,513, primarily due to reduced headcount and lower sales commissions, consistent with lower student enrollment and revenue. T the decrease was partially offset by an increase of $8,135 in advertising expenses.
Provision for income tax
We had no income tax provision for the nine months ended September 30, 2026 as we made fully allowance on the deferred tax assets as we have determined that it is not more likely than not that the assets will be realized. Provision for income taxes for the nine months ended September 30, 2025 was $701,957.
Net loss
As a result of the factors discussed above, our net loss increased by $5,695,278, from $1,642,387 for the nine months ended September 30, 2025, to $7,337,665 for the nine months ended September 30, 2026.
Liquidity and Capital Resources
As of September 30, 2026, we had cash and cash equivalents of $14,384,888. Cash consists primarily of cash on hand and bank deposits. The Company also maintains U.S. dollar-denominated stablecoins ("USDC") that are classified as restricted cash in the accompanying consolidated balance sheets pursuant to the terms of the Company's financing arrangements. The Company maintains cash deposits with financial institutions that may exceed federally insured limits at times. The following table shows the breakout between cash on hand and bank deposits:
|
| September30, 2026 |
|
| December 31, 2025 |
| ||
|
|
|
|
|
|
| ||
Cash on hand |
| $ | 3,146 |
|
| $ | 3,144 |
|
Bank deposits |
|
| 14,381,742 |
|
|
| 2,748,450 |
|
Restricted USDC in investment accounts |
|
| 3,003,537 |
|
|
| - |
|
Total cash shown in the Statement of Cash Flows |
| $ | 17,388,425 |
|
| $ | 2,751,594 |
|
The accompanying consolidated financial statements have been prepared applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. As of September 30, 2026, the Company had cash of $14,384,888, a working capital surplus of $15,547,650 and a stockholders’ equity of $16,942,111. The Company’s liquidity improved significantly as compared to same period last year. Although the Company recorded losses of $7,337,665 and $1,642,387 for the nine months ended September 30, 2026 and 2025 , respectively, Management has evaluated and determined that the current working capital, especially the cash position is sufficient to support its continuous operations and to meet its payment obligations when liabilities fall due within the next twelve months from the date of issuance of these combined and consolidated financial statements. Accordingly, the Company’s combined and consolidated financial statements are prepared on going concern basis, which assumes that the Company will continue in operation for the foreseeable future and, accordingly, will be able to realize its assets and discharge its liabilities in the normal course of operations as they come due.
These financial statements do not include any adjustment relating to the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
| 39 |
| Table of Contents |
We may, however, need additional cash resources in the future if we experience changes in business conditions or other developments, or if we find and wish to pursue opportunities for investments, acquisitions, capital expenditures or similar actions. If we determine that our cash requirements exceed the amount of cash and cash equivalents we have on hand at the time, we may seek to issue additional equity or debt securities. The issuance and sale of additional equity would result in further dilution to our shareholders. The incurrence of indebtedness would result in increased fixed obligations and could result in operating covenants that would restrict our operations. We cannot assure you that financing will be available in amounts or on terms acceptable to us, if at all.
|
| For the nine months ended September 30, |
| |||||
|
| 2026 |
|
| 2025 |
| ||
|
|
|
|
|
|
| ||
Net cash (used in) operating activities |
| $ | (2,321,420 | ) |
| $ | (3,174,525 | ) |
Net cash (used in) investing activities |
|
| 3,951,470 |
|
|
| (2,300,000 | ) |
Net cash provided by financing activities |
|
| 13,006,781 |
|
|
| 8,852,667 |
|
Change in cash and cash equivalents |
|
| 14,636,831 |
|
|
| 3,378,142 |
|
Cash and cash equivalents, beginning of year |
|
| 2,751,594 |
|
|
| 50,682 |
|
Cash and cash equivalents, end of period |
| $ | 17,388,425 |
|
| $ | 3,428,824 |
|
Operating Activities
Net cash used in operating activities for the nine months ended September 30, 2026, was primarily attributable to a net loss of $7,337,665, a decrease in deferred revenues of $461,809,and a non-cash adjustment of $92,992 related to crypto staking rewards. Cash outflow was primarily offset by change in fair value of convertible debt of $1,331,562, change in fair value of crypto assets of $3,380,547, non-cash amortization of operating lease right-of-use assets $234,732, employee stock-based compensation of $536,549, and depreciation and amortization of $364,292.
Net cash used in operating activities for the nine months ended September 30, 2025, was primarily attributable to a net loss of $1,642,387, a decrease in operating lease liabilities of $233,474 as we made payment under the lease contract, decrease in deferred revenues of $766,575, and change in fair value of crypto assets of $3,342,651. Cash outflow was partially offset by the change in fair value of warrants of $629,625, change in fair value of convertible debt of $510,138, non-cash amortization of operating lease right-of-use assets $227,948, employee stock compensation of $311620, increase in deferred tax liabilities of $701,957, and increase in accrued liabilities and other payables of $363,041.
Investing Activities
Net cash provided by investing activities was $3,951,470 for the nine months ended September 30, 2026. The increase was primarily attributable to proceeds from sales of crypto assets.
Net cash used in investing activities was $2,300,000 for the nine months ended September 30, 2025. The decrease was primarily attributable to our purchases of crypto assets and intangible assets.
Financing Activities
Net cash provided by financing activities was $13,006,781 for the nine months ended September 30, 2026, was primarily attributable to the issuance of convertible notes of $2,500,000, and financing from ATM Offering of $10,743,417,
Net cash provided by financing activities was $8,852,667 for the nine months ended September 30, 2025. The increase was primarily attributable to the issuance of convertible notes of $3,089,400, capital contribution from private placement of $4,700,000, and proceeds from the reverse recapitalization of $1,077,752.
| 40 |
| Table of Contents |
Critical Accounting Policies and Estimates
Accounting Principles—The consolidated financial statements and accompanying notes are prepared in accordance with generally accepted accounting principles in the United States of America (GAAP).
Principles of consolidation—The consolidated financial statements include the financial statements of the Company and its subsidiary. All significant intercompany transactions and balances between the Company and its subsidiary are eliminated upon consolidation.
Use of Estimates— The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Significant estimates and assumptions reflected in the consolidated financial statements include, but are not limited to, useful lives of property and equipment, valuation of deferred tax assets and liabilities, operating lease right-of-use assets and liabilities and deferred revenue. Actual results may differ materially from such estimates. Management believes that the estimates, and judgments upon which they rely, are reasonable based upon information available to them at the time that these estimates and judgments are made. To the extent that there are material differences between these estimates and actual results, the Company’s consolidated financial statements will be affected.
Revenue Recognition— The Company has two predominant sources of revenue: time-based subscriptions, credit-based subscriptions to our online courses.
Customers are required to pay in advance to enroll for course. For time-based subscriptions, we are obligated to provide students with unlimited access to our course for a specified term. For credit-based subscriptions, we offer our students the flexibility to take courses at any time up to the limit of their prepaid balance. Each contract of the online education service is accounted for as single performance obligation which is satisfied ratably over the service period. We charge fixed fees to the services contracts. The proceeds collected are initially recorded as deferred revenue. For credit-based subscriptions, revenues are recognized proportionately as the courses are delivered. For time-based subscriptions, revenues are recognized on a straight-line basis over the subscription period from the date in which the students activate the courses to the date of expiration. Refunds are provided to the students who decide to withdraw from the subscribed courses within the course offer period and a proportional refund is based on the percentage of untaken courses to the total courses purchased. Historically, the Company has not experienced material refunds.
Principal Agent Considerations—The Company makes its application available to be downloaded through third-party digital distribution service providers. Users who intend to enroll our courses are directed to third-party payment platforms before completing subscription with us. The Company evaluates the purchases via third-party payment processors to determine whether its revenues should be reported gross or net of fees retained by the payment processor. The Company is the principal in the transaction with the end user as a result of controlling, hosting, and integrating the delivery of the virtual items to the end user. The Company records revenue on a gross basis as a principal and records fees paid to third-party payment platforms as cost of revenues.
Deferred Revenue— Deferred revenue mostly consists of payments we receive in advance of revenue recognition. Revenue is recognized over the life of the subscription, or as the delivery of the pre-purchased class sessions. The Company classifies deferred revenue as a short-term liability on the balance sheets as the longest subscription plan is for twelve months and the remaining session are expected to be delivered within twelve months or less.
Cost of Revenue—Cost of revenue predominantly consists of streaming services, third-party payment processing fees, and wages for teachers and certain employees engaged in producing the revenue.
Property and Equipment—Property and equipment primarily includes computers and furniture are stated at cost, less accumulated depreciation. Depreciation is computed on the straight-line method over 5 years.
Leasehold improvements are amortized over the lesser of the life of the lease or the estimated useful life of the leasehold improvements. Costs related to maintenance and repairs that do not extend the assets’ useful life are expensed as incurred.
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Investment accounts—Investment accounts consist of cash and crypto assets held for investment purposes. Cash is carried at cost, which approximates fair value due to its short-term nature. The Company has elected to use the weighted average cost (WAC) method to determine the cost basis for its initial recognition of crypto asset holdings. Under this method, the cost of crypto assets sold or exchanged is calculated using the weighted average cost per unit at the time of the transaction. This method is applied consistently across all crypto asset holdings. The Company measures the fair value of its crypto assets subsequently, with gains and losses from changes in the fair value of such crypto assets recognized in net income each reporting period. The Company establishes a deferred tax liability if the market value of crypto assets at the reporting date is greater than the average cost basis of the Company’s crypto holdings at such reporting date, and any subsequent increases or decreases in the market value of crypto assets increases or decreases the deferred tax liability. In determining the gain (loss) to be recognized upon sale, the Company calculates the difference between the sales price and carrying value of the crypto assets with WAC method.
Intangible assets—Intangible assets acquired by the Company are stated at cost less accumulated amortization (where the estimated useful life is finite) and impairment losses. Amortization of intangible assets with finite useful lives is charged to profit or loss on a straight-line basis over the assets’ estimated useful life, which is the period over which an asset is expected to be available for use. The estimates and associated assumptions of useful life determined by the Company are based on technical or commercial obsolescence, legal or contractual limits on the use of the asset, and other relevant factors. Both the period and method of amortization are reviewed annually. Intangible assets are not amortized while their useful lives are assessed to be indefinite. Any conclusion that the useful life of an intangible asset is indefinite is reviewed annually to determine whether events and circumstances continue to support the indefinite useful life assessment for that asset. If they do not, the change in the useful life assessment from indefinite to finite is accounted for prospectively from the date of change and in accordance with the policy for amortization of intangible assets with finite lives as set out above.
Income Taxes—The Company provides for income taxes in accordance with the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the carrying amounts of existing assets and liabilities for financial reporting and for income tax reporting. The deferred tax asset or liability represents the future tax return consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. A valuation allowance is established for any deferred tax asset for which it is determined that it is more likely than not that some or all of the deferred tax assets will not be realized.
The Company utilizes a two-step approach to recognizing and measuring uncertain tax positions accounted for in accordance with the asset and liability method. The first step is to evaluate the tax position for recognition by determining whether evidence indicates that it is more likely than not that a position will be sustained if examined by a taxing authority.
The second step is to measure the tax benefit as the largest amount that is 50% likely of being realized upon settlement with a taxing authority. There were no amounts recorded at September 30, 2026 and 2025 related to uncertain tax positions.
Fair Value of Financial Instruments—The Company accounts for certain assets and liabilities at fair value in accordance with the accounting guidance applicable to fair value measurements and disclosures.
The carrying values of cash, cash equivalents, accounts payable, deferred revenues, interest payable, loan payable, due to related parties, operating lease liabilities and accrued liabilities and other payables are deemed to be reasonable estimates of their fair values because of their short-term nature.
Research and Development Costs— Research and development expenses include compensation-related expenses to the outsourced subcontractors for maintenance of our online learning platform.
Recent Issued Accounting Pronouncements
For a detailed discussion on recent accounting pronouncements, see Note 2 to the consolidated financial statements included elsewhere in the Form 10-Q.
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Contingencies—The Company records accruals for contingencies and legal proceedings expected to be incurred in connection with a loss contingency when it is probable that a liability has been incurred and the amount can be reasonably estimated. If a loss contingency is not probable, but is reasonably possible, or is probable but cannot be estimated, the nature of the contingent liability, together with an estimate of the range of possible loss, would be disclosed.
Off-Balance Sheet Arrangements
The Company has no off-balance sheet arrangements including arrangements that would affect the Company’s liquidity, capital resources, market risk support and credit risk support or other benefits.
Item 3 – Quantitative and Qualitative Disclosures About Market Risk
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise required under this item.
Item 4 – Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
As required by Rules 13a-15 and 15d-15 under the Exchange Act, our Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2026. Based upon their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that during the period covered by this report, our disclosure controls and procedures (as defined in Rules 13a-15 (e) and 15d-15 (e) under the Exchange Act) were effective at a reasonable assurance level and, accordingly, provided reasonable assurance that the information required to be disclosed by us in reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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Part II - Other Information
Item 5 – Other Information
During the quarter ended September 30, 2026, no director or officer adopted or terminated any (i) “Rule 10b5-1 trading arrangement,” as defined in Item 408(a) of Regulation S-K intending to satisfy the affirmative defense conditions of Rule 10b5–1(c) or (ii) “non-Rule 10b5-1 trading arrangement,” as defined in Item 408(c) of Regulation S-K.
Item 6 – Exhibits
Exhibit No. |
| Description |
4.1 |
| Form of Senior Secured Convertible Additional Note (incorporated by reference to Exhibit 10.1 included in the Company’s Current Report on Form 8-K dated September 17, 2026) |
10.1 |
| Service Order Form and Terms of Service, dated as of July 16, 2026, by and between Canopy Wave, Inc. and Catalyst Compute LLC (incorporated by reference to Exhibit 10.1 included in the Company’s Current Report on Form 8-K dated July 17, 2026) |
31.1* |
| Certification of Principal Executive Officer Pursuant to Securities Exchange Act Rules 13a-14(a), as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
31.2* |
| Certification of Principal Financial Officer Pursuant to Securities Exchange Act Rules 13a-14(a), as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
32.1** |
| Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
32.2** |
| Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
101.INS |
| Inline XBRL Instance Document. The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
101.SCH |
| Inline XBRL Taxonomy Extension Schema Document. |
101.CAL |
| Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
101.DEF |
| Inline XBRL Taxonomy Extension Definition Linkbase Document. |
101.LAB |
| Inline XBRL Taxonomy Extension Label Linkbase Document. |
101.PRE |
| Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
104 |
| Cover Page Interactive Data File. The cover page XBRL tags are embedded within the Inline XBRL document. |
* Filed herewith
** These certifications are furnished to the SEC pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, nor shall they be deemed incorporated by reference in any filing under the Securities Act of 1933, except as shall be expressly set forth by specific reference in such filing.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| KIDZ AI INC. |
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Dated: November 12, 2026 | By. | /s/ Hui Luo |
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| Hui Luo |
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| Chief Executive Officer |
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| (Principal Executive Officer) |
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Dated: November 12, 2026 | By. | /s/ Yanling Peng |
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| Yanling Peng |
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| Chief Financial Officer |
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| (Principal Financial Officer) |
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