KSEZ 10-Q
Kinetic Seas Inc. (KSEZ)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
Or
For the transition period from ______ to ______
Commission file number
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(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
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| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including
area code (
| (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 exchange on which registered | ||
| N/A | N/A | N/A |
Securities registered pursuant to Section 12(g)
of the Act:
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, a smaller reporting company, or emerging growth company. See the 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 Act.) Yes ☐
No
The number of shares outstanding of the registrant’s common stock as of August 19, 2026, was shares.
KINETIC SEAS INCORPORATED
QUARTERLY REPORT ON FORM 10-Q
For the Six Months Ended June 30, 2026
| PART I – FINANCIAL INFORMATION | ||
| Item 1. | Financial Statements (unaudited) | 4 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 22 |
| Item 3. | Quantitative and Qualitative Disclosures about Market Risk | 29 |
| Item 4. | Controls and Procedures | 29 |
| PART II – OTHER INFORMATION | ||
| Item 1. | Legal Proceedings | 31 |
| Item 1A. | Risk Factors | 31 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 31 |
| Item 3. | Defaults Upon Senior Securities | 31 |
| Item 4. | Mine Safety Disclosures | 31 |
| Item 5. | Other Information | 31 |
| Item 6. | Exhibits | 32 |
| SIGNATURES | 33 | |
| 2 |
PART I – FINANCIAL INFORMATION
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Information contained in this quarterly report on Form 10-Q contains “forward-looking statements.” These forward-looking statements are contained principally in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and are generally identifiable by use of the words “may,” “will,” “should,” “expect,” “anticipate,” “estimate,” “believe,” “intend” or “project” or the negative of these words or other variations on these words or comparable terminology. The forward-looking statements herein represent our expectations, beliefs, plans, intentions or strategies concerning future events, including, but not limited to: our ability to consummate the Merger, as such term is defined below; the continued services of the Custodian as such term is defined below; our future financial performance; the continuation of historical trends; the sufficiency of our resources in funding our operations; our intention to engage in mergers and acquisitions; and our liquidity and capital needs. Our forward-looking statements are based on assumptions that may be incorrect, and there can be no assurance that any projections or other expectations included in any forward-looking statements will come to pass. Moreover, our forward-looking statements are subject to various known and unknown risks, uncertainties and other factors that may cause our actual results, performance, or achievements to be materially different from future results, performance or achievements expressed or implied by any forward-looking statements. These risks, uncertainties and other factors include but are not limited to: the risks of limited management, labor, and financial resources; our ability to establish and maintain adequate internal controls; our ability to develop and maintain a market in our securities; and our ability obtain financing, if and when needed, on terms that are acceptable. Except as required by applicable laws, we undertake no obligation to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future.
As used in this quarterly report on Form 10-Q, “we”, “our”, “us” and the “Company” refer to Kinetic Seas Incorporated. a Colorado corporation unless the context requires otherwise.
| 3 |
Item 1. Financial Statements.
Index to Unaudited Financial Statements
| 4 |
KINETIC SEAS INCORPORATED
BALANCE SHEETS
| June 30, | December 31, | |||||||
| 2026 | 2025 | |||||||
| (Unaudited) | (Audited) | |||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash | $ | $ | ||||||
| Investment as Collateral | ||||||||
| Prepaid Expenses | ||||||||
| Deferred charge | ||||||||
| Total current assets | ||||||||
| Right of use assets | ||||||||
| Property and equipment, net | ||||||||
| Investments | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS' DEFICIT | ||||||||
| Current Liabilities | ||||||||
| Overdraft | $ | $ | ||||||
| Accounts payable | ||||||||
| Accrued liabilities | ||||||||
| Deferred Revenue Current | ||||||||
| Accrued interest | ||||||||
| Lease liabilities -short term | ||||||||
| Notes payable | ||||||||
| Notes payable related parties | ||||||||
| Total current liabilities | ||||||||
| Deferred Revenue-noncurrent | ||||||||
| Non-Current Liabilities | ||||||||
| Lease liabilities long term | ||||||||
| Total Non-current Liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies | ||||||||
| STOCKHOLDERS' DEFICIT | ||||||||
| Preferred A stock, $ par value, shares authorized, and shares issued and outstanding, respectively, as of June 30, 2026 and December 31, 2025 | ||||||||
| Preferred B stock, $ par value, shares authorized, and shares issued and outstanding, respectively, as of June 30, 2026 and December 31, 2025 | ||||||||
| Common stock, $ par value, shares authorized and and shares issued and outstanding, respectively as of June 30, 2026 and December 31, 2025 | ||||||||
| Additional paid-in-capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders' deficit | ( | ) | ( | ) | ||||
| Total liabilities and stockholders' deficit | $ | $ | ||||||
Note: Amounts may not foot due to rounding.
The accompanying notes are an integral part of these unaudited financial statements.
| 5 |
KINETIC SEAS INCORPORATED
STATEMENTS OF OPERATIONS
(Unaudited)
| Three months | Three months | Six months | Six months | |||||||||||||
| ended | ended | ended | ended | |||||||||||||
| June 30, | June 30, | June 30, | June 30, | |||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| Consulting Revenue | $ | $ | $ | $ | ||||||||||||
| Product Sales | ||||||||||||||||
| Cost of sales consulting labor | ||||||||||||||||
| Gross margin (loss) | ( | ) | ( | ) | ||||||||||||
| Operating expenses | ||||||||||||||||
| Selling, general and administrative expenses | ||||||||||||||||
| Professional fees | ||||||||||||||||
| Payroll and benefits | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ||||||||||||
| Other (expense): | ||||||||||||||||
| Investment Income | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Gain/Loss on Debt extinguishment | ( | ) | ||||||||||||||
| Total other expense | ( | ) | ( | ) | ( | ) | ||||||||||
| Net (loss) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Basic and diluted loss per share | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
| Weighted average number of shares outstanding: | ||||||||||||||||
| Basic and diluted | ||||||||||||||||
Note: Amounts may not foot due to rounding.
The accompanying notes are an integral part of these unaudited financial statements.
| 6 |
KINETIC SEAS INCORPORATED
STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
(Unaudited)
| Preferred A Stock | Preferred B Stock | Common Stock | Additional Paid In | Accumulated | Total Stockholders’ | |||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||||||||||||||
| Balance, December 31, 2024 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||
| Conversion of Preferred A to common stock | ( | ) | – | ( | ) | |||||||||||||||||||||||||||||||
| Conversion of Preferred B to common stock | – | ( | ) | ( | ) | |||||||||||||||||||||||||||||||
| Conversion of common shares to Preferred A | – | ( | ) | ( | ) | |||||||||||||||||||||||||||||||
| Shares issued for services | – | – | ||||||||||||||||||||||||||||||||||
| Net loss | – | – | – | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Balance, March 31, 2025 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||
| Shares issued for services | – | – | ||||||||||||||||||||||||||||||||||
| Shares issued in error to be recovered | – | – | ||||||||||||||||||||||||||||||||||
| Shares issued for financing fees | – | – | ||||||||||||||||||||||||||||||||||
| Common stock issued in private placement | – | – | ||||||||||||||||||||||||||||||||||
| Net loss | – | – | – | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Balance, June 30, 2025 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||
| Balance, December 31, 2025 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||
| Conversion of Preferred B to common stock | – | ( | ) | |||||||||||||||||||||||||||||||||
| Shares issued for Services | – | |||||||||||||||||||||||||||||||||||
| Shares issued for software (issued in prior qtr) | – | – | ||||||||||||||||||||||||||||||||||
| Shares issued for financing fees | – | – | ||||||||||||||||||||||||||||||||||
| Common Stock issued for cash (error correction) | – | – | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Net loss | – | – | – | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Balance, March 31, 2026 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||
| Conversion of Preferred B to common stock | – | – | ||||||||||||||||||||||||||||||||||
| Shares issued for services | – | – | ||||||||||||||||||||||||||||||||||
| Shares issued for financing fees | – | – | – | |||||||||||||||||||||||||||||||||
| Net loss | – | – | – | |||||||||||||||||||||||||||||||||
| Balance, June 30, 2026 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||
Note: Amounts may not foot due to rounding.
The accompanying notes are an integral part of these unaudited financial statements.
| 7 |
KINETIC SEAS INCORPORATED
STATEMENTS OF CASH FLOWS
(Unaudited)
| Six months | Six months | |||||||
| ended | ending | |||||||
| June 30, | June 30, | |||||||
| 2026 | 2025 | |||||||
| Cash flows used in operating activities | ||||||||
| Net (loss) from operations | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities | ||||||||
| Stock based compensation | ||||||||
| Gain on the extinguishment of debt | ||||||||
| Depreciation | ||||||||
| Investment Income | ( | ) | ||||||
| Amortization of ROU | ||||||||
| Changes in assets and liabilities | ||||||||
| Accounts receivable | ||||||||
| Lease liability-net | ( | ) | ||||||
| Deferred charge | ||||||||
| Prepaid Expense | ||||||||
| Accounts payable | ||||||||
| Accrued liabilities | ( | ) | ||||||
| Accrued interest | ||||||||
| Deferred Revenue | ( | ) | ||||||
| Other non-current liabilities | ||||||||
| Cash overdraft | ||||||||
| Accrued officer compensation | ||||||||
| Net cash (used in) operating activities | ( | ) | ( | ) | ||||
| Cash flows (used in) investing activities | ||||||||
| Net cash (used in) investing activities | ||||||||
| Cash flows provided by financing activities | ||||||||
| Proceed from related party notes | ||||||||
| Proceeds from notes payable | ||||||||
| Repayment of notes payable | ( | ) | ( | ) | ||||
| Proceeds from common stock issued for cash | ||||||||
| Net cash provided by financing activities | ||||||||
| Net (decrease) in cash | ( | ) | ( | ) | ||||
| Cash, beginning of period | ||||||||
| Cash, end of period | $ | $ | ||||||
Note: Amounts may not foot due to rounding.
The accompanying notes are an integral part of these unaudited financial statements.
| 8 |
NOTES TO UNAUDITED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2026 AND 2025
NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS
Nature of Operations
Kinetic Seas Incorporated (the “Company”) was formed on January 3, 2015, as a Colorado corporation with the name ONCO Merger Sub, Inc. On January 5, 2015, the Company merged with Oncology Med, Inc. as part of a holding company reorganization involving Oracle Nutraceuticals Company, under which the Company was the surviving entity in the merger. On January 18, 2015, the Company changed its name to Oncology Med, Inc. On September 16, 2016, the Company changed its name to Bellatora, Inc. On January 19, 2024, the Company changed its name to Kinetic Seas Incorporated.
The Company is an Artificial Intelligence (“AI”) consulting, research and development, infrastructure, and software company with a primary focus on GPU Cloud Hosting.
By a written consent dated December 14, 2023, the Board of Directors of the Company approved the appointment of Edward Honour, Jeffey Lozinski, Joseph Lehman, and Robert Jackson to the Board of Directors of the Company, and appointed Edward Honour as Chairman (the “New Directors”). At the same time, the Board of Directors approved the issuance of 21,600,000 shares of common stock at $0.001 per share to the New Directors and certain new employees, of which 19,950,000 were acquired by the New Directors. In addition, the Board of Directors also approved a private offering of 10,000,000 shares of common stock at $0.05 per share. An affiliate of a New Director purchased the initial 1,000,000 shares in this offering. As a result of both transactions, the New Directors and their affiliates acquired an aggregate of 20,950,000 Shares of common stock, which constituted approximately 84% of issued and outstanding common shares of the Company at the time.
The appointment of the New Directors to the Company’s board, and the sale to the New Directors of a controlling interest in the Company, were made to enable the Company to enter the business of artificial intelligence hosting, research & development, and consulting. Before the change in control to the New Directors, the Company was a shell company.
The Company’s accounting year-end is December 31.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The financial statements of the Company have been prepared in accordance with GAAP. This basis of accounting involves the application of accrual accounting and consequently, revenues and gains are recognized when earned, and expenses and losses or recognized when incurred.
| 9 |
Use of Estimates
The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of accrued liabilities and the reported amounts of revenues and expenses during the reporting period. The most significant estimates relate to revenue recognition, valuation of accounts receivable, and the allowance for doubtful accounts, inventories, and contingencies. The Company bases its estimates on historical experience, known or expected trends, and various other assumptions that are believed to be reasonable given the quality of information available as of the date of these financial statements. The results of these assumptions provide the basis for making estimates about the carrying amounts of assets and liabilities that are not readily apparent from other sources. Actual results could differ from these estimates.
Revenue Recognition and Cost of Consulting Labor
The Company adopted Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”), using the modified retrospective method applied to those contracts that were not completed as of January 1, 2018.
The Company will recognize revenue in accordance with Accounting Standards Codification No. 606, “Revenue from Contracts with Customers” (“ASC606”). ASC 606 directs entities to recognize revenue when the promised goods or services are transferred to the customer. The amount of revenue recognized should equal the total consideration an entity expects to receive in return for the goods or services. The Financial Accounting Standards Board (FASB) created a five-step approach that entities should apply when determining the amount and timing of revenue recognition:
Step 1: Identify the contract with a customer
Step 2: Identify the performance obligations in the contract
Step 3: Determine the transaction price
Step 4: Allocate the transaction price to the performance obligations in the contract
Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.
In August 2025, the Company entered into a five-year licensing and technology collaboration agreement with Sagtec Global Limited (“Sagtec”) pursuant to which Sagtec obtained rights to use the Company’s Skilliks platform and related technologies. In October 2025, the agreement was amended to provide for the issuance of 5,500,000 Sagtec ordinary shares to the Company in satisfaction of Sagtec’s contractual licensing fee obligation. The Company accounts for revenue under this arrangement in accordance with ASC 606 and recognizes the applicable transaction price over the period in which the related performance obligations are satisfied.
For the three and six months ended June 30, 2026,
the Company recognized $
Revenue was $
Total operating expenses decreased approximately
75% to $
As a result, the Company reported income from
operations of $
Revenue was $
| 10 |
Total operating expenses decreased approximately
48% to $
The Company reported income from operations of
$
The Company did
Deferred Revenue
Deferred revenue primarily relates to the Company’s
licensing and development arrangement with Sagtec Global Limited (“Sagtec”). As of December 31, 2025, deferred revenue totaled
$
During the six months ended June 30, 2026, the
Company recognized $
Investments
The Company’s investments primarily consist of equity securities received in connection with the Sagtec licensing and development arrangement. The Company accounts for these investments in accordance with ASC 321, Investments—Equity Securities, with securities having readily determinable fair values measured at fair value and changes in fair value recognized in earnings.
Investments totaled $
Investment as Collateral
During the six months ended June 30, 2026, the
Company used certain Sagtec equity securities in connection with financing arrangements. As of June 30, 2026, $
| 11 |
Loss on Debt Extinguishment
During the three months ended March 31, 2026,
the Company settled certain outstanding debt, accrued interest and other accrued obligations through the transfer of Sagtec equity securities
previously recorded as investments. The carrying amount of investment securities transferred in connection with these settlements was
approximately $
As a result, the Company recognized a non-cash loss on debt extinguishment
of $
Cash and Cash Equivalents
The Company considers all highly liquid temporary
cash investments with an original maturity of three months or less when purchased to be cash equivalents. As of June 30, 2026 and December
31, 2025, the Company had cash and cash equivalents of $
Stock-based Compensation
The Company accounts for stock-based compensation using the fair value method following the guidance outlined in Section 718-10 of the FASB Accounting Standards Codification for disclosure about Stock-Based Compensation. This section requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). That cost will be recognized over the period during which an employee is required to provide service in exchange for the award- the requisite service period (usually the vesting period). No compensation cost is recognized for equity instruments for which employees do not render the requisite service.
Income taxes
The Company accounts for income taxes under FASB ASC 740, “Accounting for Income Taxes”. Under FASB ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under FASB ASC 740, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. FASB ASC 740-10-05, “Accounting for Uncertainty in Income Taxes” prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities.
| 12 |
The amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. The Company assesses the validity of its conclusions regarding uncertain tax positions quarterly to determine if facts or circumstances have arisen that might cause it to change its judgment regarding the likelihood of a tax position’s sustainability under audit.
On Dec. 18, 2019, the Financial Accounting Standards Board (FASB) released Accounting Standards Update (ASU) 2019-12, which affects general principles within Topic 740, Income Taxes. The amendments of ASU 2019-12 are meant to simplify and reduce the cost of accounting for income taxes. The FASB has stated that the ASU is being issued as part of its Simplification Initiative, which is meant to reduce complexity in accounting standards by improving certain areas of generally accepted accounting principles (GAAP) without compromising information provided to users of financial statements. The Company adopted this guidance on January 1, 2021, which had no impact on the Company’s financial statements.
Net loss per common share is computed by dividing net loss by the weighted average common shares outstanding during the period as defined by Financial Accounting Standards, ASC Topic 260, “Earnings per Share.” Basic earnings per common share (“EPS”) calculations are determined by dividing net income by the weighted average number of shares of common stock outstanding during the year. Diluted earnings per common share calculations are determined by dividing net income by the weighted average number of common shares and dilutive common share equivalents outstanding.
Recent Accounting Pronouncements
There have been no new or material changes to the significant accounting policies discussed in the Company’s audited financial statements in its Annual Report on Form 10-K for the fiscal year ended December 31, 2024 as filed with the SEC on April 24, 2025, that are of significance, or potential significance, to the Company.
NOTE 3 – GOING CONCERN
The accompanying financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business for the twelve months following the date of these financial statements.
The Company has incurred significant operating
losses since inception. As of June 30, 2026, the Company had an accumulated deficit of approximately $ million and a working capital
deficit of approximately $
The Company does not currently expect that cash generated from operations will be sufficient to fund its anticipated operating requirements. These conditions raise substantial doubt about the Company's ability to continue as a going concern within one year after the date that these financial statements are issued.
Management's plans to alleviate this substantial doubt include continued efforts to raise capital through private placements of equity securities, debt financing arrangements, strategic partnerships, and other financing alternatives. The Company has historically been successful in obtaining funding from investors and lenders and continues to evaluate additional sources of capital to support operations, product development, commercialization efforts, and working capital requirements. However, there can be no assurance that such financing will be available on acceptable terms, if at all.
The accompanying financial statements have been prepared assuming the Company will continue as a going concern and do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
| 13 |
NOTE 4 – ACCRUED LIABILITIES
As of June 30, 2026 and December 31, 2025, the
Company had accrued liabilities of $
The decrease in accrued liabilities during the
six months ended June 30, 2026 reflects the settlement, adjustment, and reclassification of obligations recorded in prior periods. As
of June 30, 2026, the Company had
NOTE 5 – RELATED PARTY TRANSACTIONS
On September 18, 2021, the Company entered into
a $
On December 14, 2023, the Company and CIP agreed
to convert $
The conversion of debt into stock reduced the
balance owed on the Promissory Note to $
The Company made payments in connection with the
Erik Nelson note to Coral Capital Advisors, LLC. The accounting records show payments for accrued interest and principal during March,
April, May and July 2024. Following these payments, the outstanding principal was reduced to approximately $
Approximately $
The Company issued a separate promissory note
beneficially owned by Nelson Fiorino Holdings, LLC. The Company's detailed accounting schedule reflects advances consisting of an initial
$
The Company had $
The Company recorded the settlement of the $
| 14 |
The Company recorded the settlement of the
remaining $
On September 20, 2024, Lisa Lozinski, the spouse
of a Company director, loaned the Company $
During the six months ended June 30, 2026, Jeffrey Lozinski, a former officer of the Company, continued to provide commissionable sales support to the Company.
As of June 30, 2026, the Company had
NOTE 6 – EQUITY
The Company is authorized to issue shares of common stock, par value $ per share, and shares of preferred stock, par value $ per share.
As of June 30, 2026, the Company had shares of common stock issued and outstanding, compared to shares issued and outstanding as of December 31, 2025.
During the six months ended June 30, 2026, the Company issued, on a net basis, an aggregate of shares of common stock. The changes in common shares outstanding were primarily related to conversions of preferred stock into common stock, issuances for services, software-related consideration, financing fees, and the correction of certain prior-period share issuances. During the three months ended June 30, 2026, common shares outstanding increased by shares, consisting of shares associated with the conversion of preferred stock and shares issued for services. All shares were issued pursuant to applicable exemptions from registration under the Securities Act of 1933, as amended.
| 15 |
Issuance of Common Stock
On December 14, 2023, the Board of Directors approved
an offering of up to shares of common stock in a private offering to accredited investors for $0.05 per share. Prior to the
year-end, the Company issued shares in an offering for an investment of $
On March 19, 2024, the Board of Directors approved
an offering of up to shares of common stock in a private offering to accredited investors for $0.05 per share. During the three
months ended June 30, 2024, the Company issued shares in the offering and raised $
During the six months ended June 30, 2024, the
Company also issued shares for services rendered valued at $
On July 15, 2024, the Company commenced a new
offering of shares at a price of $0.50 per share. During the period from July 15, 2024, to March 31, 2025, the Company sold
common shares in the offering and raised $
During the three months ended March 31, 2025, holders of Series A and Series B Preferred Stock converted all outstanding preferred shares into an aggregate of shares of the Company's common stock. In addition, one shareholder exchanged shares of common stock for shares of Series A Preferred Stock. During the same period, the Company issued shares of common stock to two investor relations firms for services rendered.
During the three months ended June 30, 2025, the Company issued
common shares for service, 425,000 common shares issued in error which will be returned to the Company, 400,000 shares for financing fees
due to non-payment of loans by the maturity date and common shares were sold in a private placement for $0.20 per share yielding
$
During the three months ended March 31, 2026, shares of Series B Preferred Stock were converted into shares of common stock in accordance with the terms of the Company's Certificate of Designation, reducing Series B Preferred Stock outstanding from shares at December 31, 2025 to shares at March 31, 2026.
During the three months ended June 30, 2026, the Company's equity roll forward reflects an increase of shares of Series B Preferred Stock and the issuance of an additional shares of common stock, including shares associated with a preferred-stock transaction and shares issued for services. As a result, Series B Preferred Stock outstanding increased to shares and common stock outstanding increased to shares as of June 30, 2026.
During the six months ended June 30, 2026, the Company issued common stock in connection with conversions of Series B Preferred Stock, compensation for services, software-related consideration, financing fees, and other corporate financing activities. The Company also recorded adjustments related to previously issued shares and previously approved financing and capital formation transactions.
As of June 30, 2026, the Company had shares of common stock issued and outstanding, compared to shares outstanding as of December 31, 2025.
Conversions and other equity transactions completed in prior periods remain reflected in the Company's capital structure and stockholders' equity accounts as of June 30, 2026.
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Issuance of Preferred A Stock
In February 2023, the Board of Directors approved the issuance of one series of preferred stock, the Series A Convertible Preferred Stock (the “Series A Preferred”), for shares, of which shares were issued on May 31, 2024, in exchange for shares of common stock. During the three months ended September 30, 2024, the Company issued shares of Series A Preferred as a financing fee. On November 18, 2024, common shares were converted to Series A Preferred. As of December 31, 2024, there were shares of Series A Preferred outstanding.
During the three months ended March 31, 2025, the shares of Series A Preferred Stock then outstanding were converted into shares of the Company's common stock. In addition, shares of common stock were exchanged for shares of Series A Preferred Stock. As a result, shares of Series A Preferred Stock were outstanding as of March 31, 2025.
No additional Preferred A shares were issued ending June 30,2025.
No issuance or conversions of Series A Preferred Stock occurred during the three months ended June 30, 2026. Accordingly, as of June 30, 2026 and December 31, 2025, the Company had shares of Series A Preferred Stock issued and outstanding.
The Series A Preferred has the following rights:
Dividends: Each share of Series A Preferred is entitled to receive non-cumulative dividends equal to the amount of dividends that the holder of such share would have received if such share of Series A Preferred were converted into shares of common stock immediately prior to the record date of the dividend declared on the common stock.
Liquidation Preference: The Series A Preferred Stock is entitled to receive, prior to any distribution to any junior class of securities, an amount equal to $0.01 per share, plus any accrued but unpaid dividends, as a liquidation preference before any distribution may be made to the holders of any junior security, including the common stock.
Voting Rights: Each holder of Series A Preferred Stock shall vote with holders of the common stock upon any matter submitted to a vote of shareholders, in which event it shall have the number of votes equal to the number of shares of common stock into which such share of Series A Preferred Stock would be convertible on the record date for the vote or consent of shareholders.
Voluntary Conversion Rights: Each share of Series A Preferred Stock is convertible into 1,000 shares of common stock.
Mandatory Conversion Rights: The Company may convert all outstanding shares of Series A Preferred Stock into common stock, at the same ratio as the voluntary conversion rights held by the holders, at any time that there are less than 200,000 shares of Series A Preferred Stock outstanding.
Rank: The Series A Preferred ranks senior to the common stock and any other class or series of preferred stock that may be authorized and which is designated as junior to the Series A Preferred Stock.
Issuance of Preferred B Stock
On July 13, 2024, the Board of Directors approved
the issuance of a second series of preferred stock, the Series B Convertible Preferred Stock (the “Series B Preferred”), for
shares. During the three months ended March 31, 2025, the Company issued shares of Series B Preferred for cash consideration
of $
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During the three months ended March 31, 2025, the shares of Series B Preferred Stock then outstanding were converted into shares of the Company's common stock. As a result, shares of Series B Preferred Stock were outstanding as of March 31, 2025.
During the third quarter of 2025, the Company issued shares of Series B Preferred Stock for cash. During the fourth quarter of 2025, the Company issued an additional shares of Series B Preferred Stock in connection with financing obligations, resulting in shares outstanding at December 31, 2025.
During the three months ended March 31, 2026, shares of Series B Preferred Stock were converted, reducing the outstanding balance to shares.
During the three months ended June 30, 2026, the Company's equity records reflect a net increase of Series B Preferred shares.
Accordingly, as of June 30, 2026 and December 31, 2025, the Company had and shares of Series B Preferred Stock issued and outstanding, respectively.
The Series B Preferred has the following rights:
Dividends: Each share of Series B Preferred is entitled to receive non-cumulative dividends equal to the amount of dividends that the holder of such share would have received if such share of Series B Preferred were converted into shares of common stock immediately prior to the record date of the dividend declared on the common stock.
Liquidation Preference: The Series B Preferred Stock is entitled to receive, prior to any distribution to any junior class of securities, an amount equal to $0.01 per share, plus any accrued but unpaid dividends, as a liquidation preference before any distribution may be made to the holders of any junior security, including the common stock.
Voting Rights: The Series B Preferred Stock does not have the right to vote on any matter submitted to a vote of shareholders, but is entitled to notice of any shareholder meeting or any action proposed to be taken by shareholders in lieu of a meeting.
Voluntary Conversion Rights: Each share of Series B Preferred is convertible into 1,000 shares of common stock, provided that no holder of Series B Preferred may convert its shares into common stock to the extent the holder would be the beneficial owner of more than 4.99% of the Company’s common stock immediately after the conversion, and further provided that the holder has the right to waive this limitation on at least 61 days prior notice to the Company.
Mandatory Conversion Rights: The Company may convert all outstanding shares of Series B Preferred Stock into common stock, at the same ratio as the voluntary conversion rights held by the holders, at any time that there are less than 200,000 shares of Series B Preferred Stock outstanding.
Rank: The Series B Preferred ranks senior to the common stock and any other class or series of preferred stock that may be authorized and which is designated as junior to the Series B Preferred. The Series B Preferred ranks junior to the Series A Preferred.
On July 24, 2024, the Company changed its Articles of Incorporation and filed a Certificate of Designation to create 10,000,000 shares of Series B Convertible Preferred Stock. The Series B preferred shares are junior to Series B Preferred Stock and have the same rights as Series A Preferred with one exception. Series B preferred holders cannot hold in excess of 4.99% of the number of shares of Common Stock outstanding immediately after giving effect to the conversion.
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Warrants
The Company has outstanding
Reverse Stock Split
On June 5, 2023, the Company effected a 1 for
50,000 reverse split immediately followed by a 500 to 1 forward split. The net impact was a
NOTE 7 – NOTES PAYABLE
As of June 30, 2026, the Company had six short-term
notes payable with aggregate outstanding principal of $
The notes payable consisted of the following as of June 30, 2026:
| Noteholder | Original Principal | Interest Rate | Maturity | Principal Payments During 2026 | Principal Outstanding | Carrying Value | Accrued Interest | |||||||||||||||||||
| Bartholomew Marsala | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Augustine Crocco | ||||||||||||||||||||||||||
| Eagle | ||||||||||||||||||||||||||
| Labrys Fund II | ||||||||||||||||||||||||||
| Monroe Street Capital | ||||||||||||||||||||||||||
| Crom Structured Opportunities | ||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | |||||||||||||||||||||
During the six months ended June 30, 2026, the
Company made a partial repayment on the Eagle note. On April 8, 2026, the Company paid approximately $
The Labrys Fund II, Monroe Street Capital and Crom Structured Opportunities notes are presented net of unamortized debt discounts.
As of June 30, 2026, the aggregate principal balance
of these notes was $
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NOTE 8 – LEASES
During 2024, the Company
entered into a non-cancellable four year lease for which it recorded a right-of-use asset and liability based on the present value of
the lease payments in the amount of $
As of June 30, 2026, the weighted average remaining lease term was
approximately
Total lease payments under our non-cancellable leases as of June 30, 2026 were as follows:
| Year 2026 Rem | $ | |||
| Year 2027 | ||||
| Year 2028 | ||||
| Total | ||||
| Imputed interest | ( | ) | ||
| Lease liability | $ | |||
NOTE 9 – SUBSEQUENT EVENTS
In accordance with ASC 855-10, Subsequent Events, the Company evaluated subsequent events occurring after June 30, 2026 through the date the financial statements were issued. Based on this evaluation, the Company identified the following subsequent events requiring disclosure.
Satisfaction of Eagle Note and New Financing
Prior to June 30, 2026, the Company made payments representing substantially all amounts due under its Convertible Redeemable Note issued to Eagle Equities, LLC ("Eagle"), which had an original principal amount of $115,500, bore interest at 12% per annum, and was scheduled to mature on November 6, 2026. Subsequent to June 30, 2026, the Company and Eagle completed a reconciliation of the remaining amounts due under the note, including accrued interest and the applicable contractual prepayment amount. The Company subsequently paid Eagle an additional $16,781, which Eagle accepted as payment in full of all remaining amounts due under the note and related Securities Purchase Agreement. As a result, the Eagle note was fully paid, satisfied, cancelled and terminated, all remaining conversion rights were extinguished, and the Company was released from its remaining obligations under the note and related transaction documents.
Convertible Note Financing
On July 8, 2026, the Company entered into a financing transaction with CFI Capital LLC ("CFI") pursuant to which the Company issued a 6% Convertible Redeemable Note in the principal amount of $210,000, maturing July 8, 2027. The note was issued with a $21,000 original issue discount, resulting in a stated purchase price of $189,000. A portion of the proceeds from the financing was used to fund the final settlement of the remaining Eagle obligation, with the balance available for working capital, ongoing operations, and continued development and commercialization of the Company's technology platforms.
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Sagtec Agreement and MaluDb Commercialization
On July 7, 2026, the Company entered into a Third Addendum to its licensing agreement with Sagtec Global Limited ("Sagtec"). Pursuant to the Third Addendum, 2,000,000 Sagtec Class A ordinary shares are to be returned to Sagtec, leaving the Company with 1,840,000 Sagtec Class A ordinary shares. The Third Addendum also eliminated Sagtec's previously existing right of first refusal with respect to the retained shares and restored the applicable Rule 144 holding period to six months from the original August 21, 2025 effective date, subject to Rule 144 and other applicable securities laws.
On July 21, 2026, Sagtec publicly announced an expansion of the parties' strategic relationship and the planned launch of Skilliks.AI, a managed Database-as-a-Service platform built on MaluDb, the Company's open-source AI memory database. Under the Third Addendum, the Company will develop, host and maintain the Skilliks-branded MaluDb hosting platform and provide technical support while participating in revenue generated from hosting, integration and consulting services, Company-originated international sales, and potential future Enterprise Editions.
Except for the matters described above, management did not identify any other subsequent events that required adjustment to, or disclosure in, the accompanying financial statements.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Plan of Operation
From January 1, 2023, to December 14, 2023, the Company had no operations or revenues from a continuing business other than the general and administrative expenditures related to running the Company.
On December 14, 2023, our Board of Directors approved the appointment of Edward Honour, Jeffrey Lozinski, Joseph Lehman, and Robert Jackson to the Board of Directors of the Company, and appointed Edward Honour as Chairman (the “New Directors”). Erik Nelson remained a director of the Company. At the same time, the Board of Directors approved the issuance of 21,600,000 shares of common stock in the Company’s offering at $0.001 per share, of which 19,950,000 were acquired by the New Directors and the remainder were acquired by new employees. In addition, the Board of Directors also approved a private offering of 10,000,000 shares of common stock at $0.05 per share, and the spouse of a New Director purchased the initial 1,000,000 shares in such an offering. As a result of both transactions, the New Directors and their affiliates acquired an aggregate of 20,950,000 Shares of common stock in the Company, which is control of a majority of the issued and outstanding common shares of the Company at the time.
On December 14, 2023, the Board of Directors approved a resolution to enter the business of artificial intelligence hosting, research & development, and consulting (collectively, “AI”), and since has entered into a number of contracts and raised a material amount of capital from the private placement of its common stock to capitalize the business. As a result, the Company believes it no longer qualifies as a shell company.
In December 2023, following the change to the composition of our Board of Directors on December 14, 2023, we began implementing our business plan. We generated our first consulting revenue in the three months ended March 31, 2024.
The Company's artificial intelligence business is focused on AI-enabled software consulting, custom software development, AI implementation services, and the development of proprietary AI-powered solutions. Rather than concentrating on infrastructure and educational services, the Company currently focuses on helping businesses identify, plan, and implement software and artificial intelligence initiatives that improve operational efficiency and create new business opportunities.
The Company secures clients through its proprietary Skilliks™ platform, which is designed to evaluate a client's software development and technology requirements and create comprehensive development strategies. Skilliks™ utilizes artificial intelligence to identify opportunities for automation, workflow optimization, software modernization, and the incorporation of AI-powered features intended to enhance business operations and customer engagement.
The Company's consulting and development services assist organizations in designing, developing, and deploying custom software applications and AI-enabled solutions. Through these engagements, the Company helps clients integrate emerging artificial intelligence technologies into existing business processes while developing technology roadmaps aligned with each client's strategic objectives.
In addition to its consulting activities, the Company is developing and commercializing AI-enabled technology products and platforms, including AI-powered voice-agent solutions for the hospitality and food service industries. The Company is also developing MaluDb, an open-source persistent AI memory database designed to provide a structured and governed memory infrastructure layer capable of supporting multiple applications and AI agents. The Company's commercialization strategy for MaluDb includes open-source adoption, managed hosting, enterprise support, integration services, consulting services, and other commercial applications designed to create multiple potential revenue streams from the Company's core technology.
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The Company maintains a strategic commercial relationship with Sagtec Global Limited (“Sagtec”) relating to the development and commercialization of the Company’s software and artificial intelligence technologies. Under the arrangement, Sagtec has non-exclusive international rights to promote, market and sell MaluDb hosting services under the Skilliks brand, while the Company is responsible for development, hosting, maintenance and technical support of the Skilliks-branded platform. The Company is entitled to participate in revenues generated from hosting services, integration and consulting services, certain Company-originated international sales and, if developed, future Enterprise Editions of MaluDb.
During the six months ended June 30, 2026, the Company incurred commission expense associated with the Sagtec commercial arrangement, which is included in selling, general and administrative expenses. The arrangement is intended to provide additional commercialization channels for the Company’s technology; however, there can be no assurance as to the amount or timing of future revenues, if any, generated under the arrangement.
Results of Operations
Comparison of Results of Operations for the Six months Ended June 30, 2026 and 2025.
Revenues
During the three months ended June 30, 2026 and 2025, the Company generated no consulting revenue. During the three months ended June 30, 2026, the Company recognized product sales revenue of $519,750, compared with no product sales during the corresponding 2025 period. Accordingly, total revenue was $519,750 and $0 for the three months ended June 30, 2026 and 2025, respectively.
During the six months ended June 30, 2026 and 2025, the Company generated consulting revenue of $25,895 and $67,871, respectively. During the six months ended June 30, 2026, the Company recognized product sales revenue of $1,039,500, compared with no product sales during the corresponding 2025 period. Accordingly, total revenue was $1,065,395 and $67,871 for the six months ended June 30, 2026 and 2025, respectively.
Cost of sales related to consulting labor was $0 and $12,977 for the three months ended June 30, 2026 and 2025, respectively. The Company did not record any direct costs of product sales during the three months ended June 30, 2026. Software development expenditures are included in selling, general and administrative expenses because the underlying software, artificial intelligence models, code base and technology infrastructure are developed for use across multiple current and prospective customer engagements and future commercialization opportunities. These costs are not allocated to specific customer contracts or product sales because the technologies developed may be utilized across multiple projects and revenue-generating activities.
As a result, the Company reported gross profit of $519,750 for the three months ended June 30, 2026, compared with a gross loss of $12,977 for the three months ended June 30, 2025 and the Company reported gross profit of $1,065,395 for the six months ended June 30, 2026, compared with a gross loss of $2,268 for the six months ended June 30, 2025.
Operating Expenses
During the three months ended June 30, 2026, the Company incurred total operating expenses of $242,334, compared with $965,044 during the three months ended June 30, 2025, a decrease of approximately $722,710, or 75%. The decrease was primarily attributable to substantially lower professional fees and payroll and benefit expenses, partially offset by higher selling, general and administrative expenses.
During the six months ended June 30, 2026, the Company incurred total operating expenses of $605,579 compared with $1,169,397 during the six months ended June 30, 2025, a decrease of approximately $563,818, or 48%. The decrease was primarily attributable to substantially lower professional fees and payroll and benefit expenses, partially offset by higher selling, general and administrative expenses.
Selling, general and administrative expenses increased to $148,565 for the three months ended June 30, 2026, from $89,320 for the comparable prior-year period, an increase of approximately $59,245, or 66%. The increase was primarily attributable to higher commission expenses associated with the Company's commercial activities, including its Sagtec-related arrangement, and software and technology-related expenditures.
Selling, general and administrative expenses increased to $359,378 for the six months ended June 30, 2026, from $171,890 for the comparable prior-year period, an increase of approximately $187,568, or 109%. The increase was primarily attributable to higher commission expenses associated with the Company's commercial activities, including its Sagtec-related arrangement, and software and technology-related expenditures.
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Professional fees decreased to $82,964 for the three months ended June 30, 2026, from $717,141 for the three months ended June 30, 2025, a decrease of approximately $634,177, or 88%. The decrease was primarily attributable to the nonrecurrence of significant equity-based consulting expenses recognized during the prior-year period. Professional fees during the 2026 period consisted principally of consulting, accounting and financial reporting services, SEC compliance and filing costs, transfer-agent expenses and other professional services.
Professional fees decreased to $215,991 for the six months ended June 30, 2026, from $722,763 for the six months ended June 30, 2025, a decrease of approximately $506,572, or 70%. The decrease was primarily attributable to the nonrecurrence of significant equity-based consulting expenses recognized during the prior-year period. Professional fees during the 2026 period consisted principally of consulting, accounting and financial reporting services, SEC compliance and filing costs, transfer-agent expenses and other professional services.
Payroll and benefits decreased to $10,805 for the three months ended June 30, 2026, from $158,584 for the three months ended June 30, 2025, a decrease of approximately $147,779, or 93%, primarily due to lower officer and employee compensation and related payroll costs during the current-year period.
Payroll and benefits decreased to $10,805 for the six months ended June 30, 2026, from $116,440 for the six months ended June 30, 2025, a decrease of approximately $244,814, or 89%, primarily due to lower officer and employee compensation and related payroll costs during the current-year period.
The Company includes software development expenditures within selling, general and administrative expenses. Such expenditures relate to software platforms, artificial intelligence models, code libraries, applications and technology infrastructure developed for use across multiple current and prospective customer engagements and commercialization opportunities. Because these expenditures are not directly attributable to a specific customer contract or product sale, they are not classified as direct costs of revenue.
Although total operating expenses decreased significantly during the three months and six months ended June 30, 2026 compared with the prior-year period, the decrease was primarily attributable to lower professional fees and payroll and benefit expenses, including the nonrecurrence of significant equity-based consulting expenses incurred in the prior-year period. The Company expects operating expenses to continue to fluctuate from period to period based on the timing and level of professional services, technology development, public-company compliance costs, financing activities and personnel requirements. In addition, as the Company introduces and commercializes new products and services, it may incur increased marketing, sales, commission, business development and customer acquisition costs. Accordingly, the decrease in operating expenses during the current period may not be indicative of future operating expense levels.
Other (Expense)
During the three months ended June 30, 2026, the Company recorded total other income of $74,711, compared to total other expense of $40,757 during the three months ended June 30, 2025.
The improvement in other income (expense) during the three months ended June 30, 2026 was primarily attributable to investment income recognized during the period and lower interest expense compared to the prior-year period. The Company did not recognize any material loss on debt extinguishment during the three months ended June 30, 2026.
Interest expense decreased to $23,585 during the three months ended June 30, 2026 from $40,757 during the three months ended June 30, 2025. The Company may continue to incur interest expense and other financing-related charges in connection with its outstanding indebtedness and future financing activities.
During the six months ended June 30, 2026, the Company recorded total other expense of $1,483,297,compared to total other income of $30,247 during the six months ended June 30, 2025.
The increase in other expenses was primarily attributable to a loss on debt extinguishment of $1,602,602, resulting from the settlement of debt through the issuance of Sagtec shares, as well as higher interest expenses driven by increased debt levels during the current period. These increases were partially offset by investment income earned from the Company's investment in Sagtec.
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Net (Loss)
As a result of the foregoing, during the six months ended June 30, 2026, the Company incurred a net loss of $(1,023,481), or $(0.03) per basic and diluted share, compared to a net loss of $(1,242,668), or $(0.03) per basic and diluted share during the six months ended June 30, 2025.
The decreased in net loss during the six months ended June 30, 2026 was primarily attributable by higher revenues recognized during the period which is majorly set off by the loss on the debt extinguishment incurred during the current year.
Liquidity and Capital Resources
As of June 30, 2026, the Company's balance sheet reflected cash of approximately $0.
During the six months ended June 30, 2026, the Company incurred a net loss of approximately $1,023,482.
Cash flows used in operating activities were approximately $388,971 for the six months ended June 30, 2026. Operating cash flows reflected the Company's net loss, adjusted for non-cash items including stock-based compensation, depreciation, amortization of right-of-use assets, investment income, and charges related to the extinguishment of debt, as well as changes in working capital accounts. Changes in working capital included decreases in deferred revenue and accrued interest and changes in accounts payable, prepaid expenses and lease liabilities.
Cash flows provided by or used in investing activities were $0 for the six months ended June 30, 2026.
Cash flows provided by financing activities were approximately $381,204 for the six months ended June 30, 2026. Financing activities during the period included approximately $461,563 of proceeds from notes payable, offset by approximately $80,358 of activity associated with repayment of notes payable. The Company continues to utilize debt financing, equity transactions, strategic commercial relationships, and other available sources of capital to support its operations, working capital requirements, software development activities, and commercialization efforts.
Management intends to fund its working capital requirements through a combination of available cash resources, revenues generated from operations, strategic commercial relationships, potential realization of value from strategic assets, and future issuances of debt and equity securities. The Company's working capital requirements are expected to continue as it develops and commercializes its artificial intelligence and software technologies, supports its technology infrastructure, and expands its commercial activities.
Based on its current operating plan, the Company does not have sufficient internally generated cash flow to fund operations over the next twelve months. The Company requires additional capital to execute its business strategy and support future growth initiatives. There can be no assurance that the Company will be successful in obtaining additional financing on acceptable terms, or at all. If additional financing is not available when required, the Company may be forced to delay, reduce, or eliminate certain operating, development, commercialization, or strategic initiatives.
Additional issuances of equity securities or securities convertible into equity may result in substantial dilution to existing stockholders. Such securities may also contain rights, preferences, or privileges senior to those of the Company's common stock. Furthermore, debt financing may impose restrictive covenants and other obligations on the Company. If adequate capital is not available on acceptable terms, the Company's ability to pursue new business opportunities, develop products, expand operations, and achieve its strategic objectives could be materially adversely affected.
The Company expects to continue incurring operating losses in the near term as it invests in software development, artificial intelligence technologies, commercialization efforts, growth initiatives, and public company compliance activities. Because the Company's software platforms, artificial intelligence models, applications, code libraries, and related technology infrastructure are developed for use across multiple current and prospective customer engagements and future commercial opportunities, software development expenditures are included within Selling, General and Administrative expenses rather than cost of sales. The Company's future success will depend on its ability to generate sustainable revenues, manage growth effectively, secure additional financing when necessary, attract and retain qualified personnel, develop and commercialize its technology solutions, and successfully execute its business strategy. There can be no assurance that the Company will successfully achieve these objectives.
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Critical Accounting Estimates
General
Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of our financial statements requires management to make estimates, assumptions, and judgments that affect the reported amounts of assets, liabilities, net sales and expenses, and related disclosure of contingent assets and liabilities. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
We describe in this section certain critical accounting policies that require us to make significant estimates, assumptions, and judgments. An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are uncertain at the time the estimate is made and if different estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact the financial statements. Management believes the following critical accounting policies reflect its most significant estimates and assumptions used in the preparation of the financial statements. For further information on the critical accounting policies, see Note 1 of the Financial Statements.
Basis of Presentation
The accompanying financial statements have been prepared in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”), which is the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with generally accepted accounting principles (“GAAP”) in the United States.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of expenses during the reporting period. The most significant estimates relate to income taxes and contingencies. The Company bases its estimates on historical experience, known or expected trends, and various other assumptions that are believed to be reasonable given the quality of information available as of the date of these financial statements. The results of these assumptions provide the basis for making estimates about the carrying amounts of assets and liabilities that are not readily apparent from other sources. Actual results could differ from these estimates.
Cash and cash equivalents
The Company considers all highly liquid temporary cash investments with an original maturity of three months or less to be cash equivalents.
Stock-based Compensation
The Company accounts for stock-based compensation using the fair value method following the guidance outlined in Section 718-10 of the FASB ASC for disclosure about stock-based compensation. This section requires a public entity to measure the cost of employee and non-employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). That cost will be recognized over the period during which service is provided. No compensation cost is recognized for equity instruments for which service is not provided or rendered.
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Related party transactions
The Company follows ASC 850, Related Party Disclosures, for the identification of related parties and disclosure of related party transactions. In accordance with ASC 850, the Company’s financial statements include disclosures of material related party transactions, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business, as well as transactions that are eliminated in the preparation of financial statements.
Net Loss per Share
Net loss per common share is computed in accordance with ASC Topic 260, "Earnings per Share." Basic net loss per common share is calculated by dividing net loss attributable to common stockholders by the weighted average number of common shares outstanding during the period. Diluted net loss per common share is calculated by dividing net loss attributable to common stockholders by the weighted average number of common shares outstanding during the period, adjusted for the assumed conversion or exercise of potentially dilutive securities when such effect is dilutive.
For the three months ended June 30, 2026, the Company reported net income and, accordingly, potentially dilutive securities were evaluated for inclusion in the calculation of diluted earnings per share. Potentially dilutive securities outstanding as of June 30, 2026 included 500 shares of Series A Convertible Preferred Stock and 4,917 shares of Series B Preferred Stock, together with any other outstanding instruments that may be convertible into or exercisable for shares of the Company's common stock. Such securities are included in diluted earnings per share only to the extent their effect is dilutive.
For the three months ended June 30, 2025, the Company reported a net loss. Accordingly, the effect of potentially dilutive securities was anti-dilutive and such securities were excluded from the calculation of diluted net loss per share.
Income Taxes
Income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes related primarily to differences between depreciation which is deductible for tax purposes prior to being deductible for book purposes. The deferred tax assets and liabilities represent the future tax return consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Deferred taxes also are recognized for operating losses that are available to offset future taxable income.
From time to time, the Company may have differences in computing the book and tax bases of property and equipment; reserves for bad debts; capitalized overhead included in inventories; bonus plan payables, and accrued wages to shareholders/employees. Deferred tax expense or benefit is the result of the changes in the deferred tax assets, net of the valuation reserve, and liabilities.
The Company accounts for income taxes in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 740 (“FASB ASC 740”), Income Taxes, which clarifies the accounting and disclosure requirements for uncertainty in tax positions. It requires a two-step approach to evaluate tax positions and determine if they should be recognized in the financial statements. The two-step approach involves recognizing any tax positions that are “more likely than not” to occur and then measuring those positions to determine if they are recognizable in the financial statements. Management regularly reviews and analyzes all tax positions and has determined that no uncertain tax positions requiring recognition have occurred.
In general, the Company’s income tax returns are subject to examination by the taxing authorities for six years after they were filed. The Company has not filed any tax returns.
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Segment Reporting
We operate in a single segment and a single segment focused on artificial intelligence consulting, software development, AI platform licensing, and related services. Operating segments are defined as components of an enterprise for which separate financial information is regularly reviewed by the chief operating decision maker (“CODM”) in deciding how to allocate resources and assess performance. The Company’s chief executive officer serves as the CODM and evaluates performance and allocates resources based on consolidated financial information. Because the Company operates as a single operating and reportable segment, all financial segment information required by ASC 280 is included in the consolidated financial statements.
Recent Accounting Pronouncements
All other newly issued accounting pronouncements, but not yet effective, have been deemed either immaterial or not applicable.
Off-Balance Sheet Arrangements
None.
Item 3. Quantitative And Qualitative Disclosures About Market Risk.
As a smaller reporting company, we are not required to provide the information called for by this Item.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures.
Our management is responsible for establishing and maintaining a system of “disclosure controls and procedures” (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) that is designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported, within the time periods specified in the Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Management has concluded that its disclosure controls were effective as of June 30, 2026.
Management’s Report on Internal Control over Financial Reporting.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that:
| · | pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; |
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| · | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and | |
| · | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements. |
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness in future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies or procedures may deteriorate.
Our management assessed the effectiveness of our internal control over financial reporting based on the parameters set forth above and has concluded that as of June 30, 2026 our internal control over financial reporting was not effective in providing reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles as a result of the following material weaknesses:
| • | The Company does not have written documentation of our internal control policies and procedures. |
We plan to rectify these weaknesses by establishing written policies and procedures for our internal control of financial reporting and hiring additional accounting personnel.
Changes in Internal Control over Financial Reporting.
Since our prior fiscal year ended on December 31, 2025, we have concluded that some of our internal control deficiencies have been remediated. Specifically, we previously identified insufficient segregation of duties within the accounting function, and overreliance on outside financial consulting for financial reporting as internal control weaknesses. With the recent addition of experienced officers and other employees, we no longer consider these issues to be internal control weaknesses.
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PART II – OTHER INFORMATION
Item 1. Legal Proceedings.
The Company may be involved in certain legal proceedings that arise from time to time in the ordinary course of its business. Legal expenses associated with any contingency are expensed as incurred. The Company’s officers and directors are not aware of any threatened or pending litigation to which the Company is a party or which any of its property is subject and which would have any material, adverse effect on the Company.
Item 1A. Risk Factors.
Reference is made to the risks and uncertainties disclosed in Item 1A (“Risk Factors”) of our Annual Report on Form 10-12G which sections are incorporated by reference into this report, as the same may be updated from time to time.
As a smaller reporting company, the Company is not required to disclose material changes to the risk factors.
Item 2. Unregistered Sales of Equity Securities and Use Of Proceeds.
During the three months ended June 30, 2026, the Company issued an aggregate of 3,600,000 shares of common stock, consisting of 2,600,000 shares issued in connection with Series B Preferred Stock activity and 1,000,000 shares issued for consulting and professional services. As a result of these issuances, the Company had 60,745,926 shares of common stock issued and outstanding as of June 30, 2026, compared with 57,145,926 shares issued and outstanding as of March 31, 2026.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
During the quarter ended June 30, 2026, no director
or officer
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Item 6. Exhibits.
The exhibits listed on the Exhibit Index below are provided as part of this report.
| Exhibit No. | Description | |
| 31.1* | Certification of principal executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 31.2* | Certification of principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
|
32.1*
|
Certification of principal executive officer and 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 (formatted in IXBRL, and included in Exhibit 101. |
______________
| * | Filed herewith. |
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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.
| KINETIC SEAS INCORPORATED | ||
| Dated: August 19, 2026 | By: | /s/ Edward Honour |
| Ed Honour | ||
|
Chief Executive Officer and Principal Executive Officer, | ||
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