BUSINESS COMBINATION |
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Jun. 30, 2026 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Business Combination, Asset Acquisition, Transaction between Entities under Common Control, and Joint Venture Formation [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| BUSINESS COMBINATION | (4) BUSINESS COMBINATION
On March 23, 2026, FiEE HK entered into an Investment Agreement with Yinlian Culture, Maltose Culture, Guangzhou Qingniao Culture Co., Ltd., Shenzhen Yaojin Creative Media Co., Ltd., Cai Yuanyao, Zhang Dingcheng, and Zhang Rong (the “Investment Agreement”), pursuant to which (i) FiEE HK agreed to acquire a 51% equity interest (and 60% of the voting rights) in Yinlian Culture for an aggregate purchase price of $51,000. Yinlian Culture was incorporated on February 11, 2026 to facilitate the investment in Maltose Culture. In connection with the signing of the Investment Agreement, a Shareholder Agreement was also entered into on March 23, 2026 (the “Shareholder Agreement” and, together with the Investment Agreement, the “VIE Agreements”), governing the rights and obligations of the shareholders of Yinlian Culture, including, but not limited to, board composition and governance, voting rights, dividend rights and distribution thresholds, liquidation preference, and transfer restrictions. The acquisition closed on May 31, 2026. Through the VIE Agreements between Yinlian Culture and Maltose Culture, the Company obtained control over Maltose Culture, which is consolidated as a VIE of the Company.
In accordance with ASC 810-10-40-6, the Investment Agreement, the Shareholder Agreement, and the VIE Agreements were entered into in contemplation of one another and were essentially a single transaction designed to achieve an overall commercial effect. Accordingly, these agreements have been combined and accounted for as a single transaction for financial reporting purposes.
The Company evaluated the transaction in accordance with the guidance in ASC 805 and determined that the acquired set met the definition of a business. The acquired set includes both inputs and a substantive process that together significantly contribute to the ability to create outputs, including two key employees forming an organized workforce and the ability to continue revenue-generating operations without significant disruption. Accordingly, the transaction was accounted for as a business combination.
The aggregate purchase price for the 51% equity interest was $51,000 in cash, which represents a capital contribution to be made by FiEE HK to Yinlian Culture. As of June 30, 2026, this amount remained unpaid.
On May 31, 2026, FiEE HK and Yinlian Culture entered into a Supplemental Agreement to the Investment Agreement (the “Supplemental Agreement”), filed as Exhibit 10.1 to this Quarterly Report on Form 10-Q. Under the Supplemental Agreement, (i) FiEE HK waived, solely as a condition precedent to the first closing, the requirement that Yinlian Culture open a foreign exchange capital account capable of receiving the capital increase payment, provided that Yinlian Culture remains obligated to open such account following the first closing; (ii) the parties agreed that the first closing under the Investment Agreement occurs on the date the conditions precedent to the first closing are satisfied or waived, rather than within five business days thereafter, and that the signing date of the Supplemental Agreement is deemed the First Closing Date; and (iii) the parties agreed that FiEE HK’s payment of the RMB 354,807 (approximately $51,000) investment amount is due within seven business days from the date Yinlian Culture opens its foreign exchange capital account, rather than within seven business days following the first closing as originally provided.
Fair Value of Identifiable Assets Acquired and Liabilities Assumed
The purchase consideration was allocated to the identifiable assets acquired and liabilities assumed based on their estimated acquisition-date fair values. The noncontrolling interests were also measured at their acquisition date fair value, which consist of (i) the 49% equity interest in Yinlian Culture not acquired by the Company and (ii) the interest in Maltose Culture’s acquisition-date net assets attributable to its registered equity shareholders. The allocation is as follows:
The fair value of the identifiable net assets was determined using an asset approach, which estimates fair value based on the replacement cost or reproduction cost of the assets, adjusted for physical deterioration, functional obsolescence, and economic obsolescence. The fair values of financial assets and liabilities, including cash and cash equivalents, other current assets, and accrued liabilities, approximated their respective carrying amounts at the acquisition date due to their short-term nature.
Convertible Note
Under the same Investment Agreement, FiEE HK also agreed to provide, or cause an entity designated by FiEE HK to provide, a zero-interest convertible loan to Yinlian Culture in the principal amount of up to RMB 20,000,000 (approximately $2.9 million). The convertible loan is to be funded in three tranches and provides FiEE HK with the option, exercisable at any time by written notice, to either (i) require Yinlian Culture to repay all or any portion of the convertible loan in cash, or (ii) convert all or any portion of the convertible loan into additional equity in Yinlian Culture, which, upon full conversion, would result in FiEE HK and its designated entities collectively holding 60% of the total equity interests in Yinlian Culture. This convertible loan is accounted for as a separate financing arrangement and does not form part of the equity consideration in accordance with ASC 805-10-55-18. As of June 30, 2026, the Company had disbursed approximately RMB 7.6 million (approximately $1.1 million) of the convertible loan. Upon consolidation, the intercompany loan receivable and payable were eliminated in their entirety, and no liability or receivable related to this convertible loan is recognized in the condensed consolidated balance sheets. The convertible loan effectively represents a cash transfer from FiEE, Inc. (the parent) to Yinlian Culture (the acquired subsidiary), of which $51,000 can be designated as capital contribution.
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