Note 6 – Equity method investment

On April 1, 2025 (articles of organization filed March 21, 2025), the Company, Christian Schjolberg and Peter Herzog formed Rift Cyber LLC, a Nevada member-managed limited liability company. Rift is treated as a partnership for federal income tax purposes and has a calendar fiscal year. Upon formation the Company held 25% of Rift’s membership interests. The Company is named a managing member in the Articles of Organization. Under the Operating Agreement, all members have the right to participate in management and control, voting is proportional to ownership, significant actions require a majority of the membership interests, profits and losses are allocated in proportion to ownership, no member is required to make additional contributions, and assets on winding up are distributed in proportion to positive capital account balances.

Rift holds the “Rythe Tech” / Rythe intellectual property assigned to it on April 1, 2025 by Jö & Fyse UG (an entity controlled by Christian Schjolberg) and Peter Herzog. As consideration for that assignment, the Company issued each assignor 250,000 shares of the Company’s common stock (500,000 shares in the aggregate) with a fair value of $50,000 ($0.10 per share, the quoted close on the measurement date). In substance the Company acquired the rights to the intellectual property from the assignors and contributed it to Rift. The shares were recorded as stock to be issued as of June 30, 2025 and were issued effective April 1, 2025, posted by the transfer agent on December 12, 2025.

The Company holds no direct ownership of, and no license to, the Rythe Tech intellectual property. That intellectual property is owned by Rift. ASC 985-20 does not apply to the Company.

Method of accounting

Rift maintains specific ownership accounts. Under ASC 323-30-S99-1 the equity method applies to an interest in such an LLC unless the interest is so minor that the investor has virtually no influence, a threshold the SEC staff has framed at approximately 3% to 5%. A 19.9% interest is well above that threshold. Significant influence is further supported by the member-managed structure and the Company’s designation as a managing member. The equity method therefore applied throughout fiscal 2025 and fiscal 2026 and continues after the reduction to 19.9%.

No equity in earnings or losses has been recognized in either period. Development of the technology was contracted for and paid by the Company directly; those costs were not incurred by Rift. Rift’s own activity has been limited to receiving the contributed intellectual property — a capital transaction producing neither income nor loss — and nominal formation and registered agent costs.

Fiscal 2025 immaterial overstatement

The investment was overstated by $4,815 as of June 30, 2025. That amount is 0.92% of the fiscal 2025 net loss, 8.3% of fiscal year 2025 total assets and 8.8% of the fiscal 2025 carrying amount of the investment. No SAB Topic 1.M qualitative factor is present. No restatement of the fiscal 2025 financial statements is required. The error was corrected in the current period in accordance with SEC Staff Accounting Bulletin Topic 1.M and Topic 1.N. An additional $10,000 of vendor development costs incurred in fiscal year 2026 was initially recorded and reported in the third quarter Form 10-Q but has been subsequently expensed as incurred.

June 30, 2026 partial disposal

On June 26, 2026, effective June 30, 2026, the Company sold a 5.1% membership interest in Rift (20.4% of the Company’s then-held interest) to Roy Pritchett, Jr. for cash proceeds of $13,222. After the sale, the Company holds a 19.9% membership interest and the remaining membership interests are held by Peter Herzog, Christian Schjolberg, and Roy Pritchett, Jr. The consideration was set by reference to the Company’s recorded carrying amount rather than through a negotiation over Rift’s enterprise value and is not used as evidence of the fair value of the retained interest.

The carrying amount of the investment is reconciled as follows:

Cash proceeds of $13,222 less the $10,200 carrying amount derecognized produced a gain on sale of membership interest of $3,022.

During the preparation of the fiscal 2026 financial statements, the Company identified $4,815 of third-party development costs incurred during fiscal 2025 that had previously been included in the carrying amount of the Rift investment. Because the underlying technology is owned by Rift and the Company had no obligation to fund its development, the costs should have been expensed as incurred. The Company recorded the $4,815 correction in research and development expense during fiscal 2026 and reduced the carrying amount of the Rift investment by the same amount. Management evaluated the effect of the error on the previously issued fiscal 2025 financial statements and the effect of correcting the error in fiscal 2026 and fiscal 2025 and concluded that the error was not material to either period. The correction had no effect on cash flows or total liabilities.

Variable interest entity

Rift is a VIE. Aggregate equity investment at risk is $1 under Operating Agreement, which is insufficient to permit Rift to finance its activities without additional subordinated financial support (ASC 810-10-15-14(a)). The equity holders as a group possess the power to direct the significant activities and bear losses and returns proportionally, and voting rights are proportional to economic interests.

The Company is not the primary beneficiary. The activities that most significantly impact Rift’s economic performance — development funding, commercialization, significant contracts and financing — require approval of a majority of the membership interests. Messrs. Herzog and Schjolberg hold 75% collectively both before and after the disposal and can carry every majority decision without the Company. At 25% and at 19.9%, the Company has never had the unilateral ability to direct those activities. Unanimity requirements over amendments, admission of members, additional contributions and tax elections are protective rights under ASC 810-10-25-38C and do not confer power. No side agreements, voting arrangements or de facto agency relationships have been identified. Rift is therefore not consolidated.

Summarized financial information of Rift is omitted because the investment is not material to the Company’s financial statements. Rift had no revenue in either period presented. The Company’s maximum exposure to loss equals the carrying amount of $39,800 at June 30, 2026.

Disclosures required by ASC 810-10-50-4 for an unconsolidated VIE:

Maximum exposure to loss equals the carrying amount of the investment. The Company has no funding obligation and has given no guarantees.

Impairment

The investment was evaluated for other-than-temporary impairment under ASC 323-10-35-31 through 35-32. Rift’s asset is contributed intellectual property. Management believes that the technology is feasible and ready for market and that commercialization requires approximately $100,000 of further investment together with a deployment partner, neither of which was secured as of June 30, 2026. The Company has no obligation and has not stated an intention to fund further development. The carrying amount of $39,800 is 79.6% of the $50,000 ascribed to the intellectual property on assignment. No other-than-temporary impairment exists as of June 30, 2026. The assessment is repeated each reporting period.

The carrying amount of the investment depends on Rift obtaining the further funding and the deployment partner described above and on successful commercialization of the Rythe Tech intellectual property. Neither condition had been satisfied as of June 30, 2026. It is at least reasonably possible that the Company’s impairment estimate will change in the near term, and an adverse change could result in an impairment charge of up to the $39,800 carrying amount of the investment. The Company’s maximum exposure to loss is limited to that carrying amount.

Related-party status

Because the equity method applies, Rift is a related party under ASC 850-10-20 throughout the periods presented and continues to be a related party after June 30, 2026. Messrs. Herzog and Schjolberg are members of Rift and were the assignors of the intellectual property. The Company intends to engage Mr. Herzog to manage continued development of Rift Tech. As of September 8, 2026, no employment, consulting or other agreement has been entered into and no compensation has been agreed or paid.