Form 10-Q Nexscient, Inc. For: Jun 30

The functional currency of Flipside AI is the Philippine peso and the functional currency of TaskAlpha is the U.S. dollar. Assets and liabilities of the Philippine subsidiary are translated into U.S. dollars at period-end exchange rates and revenues and expenses at average rates for the period. Translation adjustments are reported in accumulated other comprehensive loss.

The preparation of financial statements requires management to make estimates and assumptions that affect reported amounts. Significant estimates include the fair values assigned to assets acquired and liabilities assumed in the Flipside AI acquisition, the imputed discount on the seller convertible note, the allowance for credit losses, the retirement benefit obligation, incremental borrowing rates used for leases, and the valuation of share-based payments. Actual results could differ from those estimates.

The Company accounts for business combinations under ASC 805, Business Combinations, using the acquisition method. The consideration transferred is measured at fair value at the acquisition date and allocated to the identifiable assets acquired and liabilities assumed based on their estimated fair values, with any excess recorded as goodwill. Acquisition-related transaction costs are expensed as incurred. Amounts recorded are provisional and may be adjusted during the measurement period, which does not exceed one year from the acquisition date.

Goodwill represents the excess of consideration transferred over the fair value of net identifiable assets acquired. Goodwill is not amortized. The Company has determined it operates as a single reporting unit and tests goodwill for impairment annually as of December 31, and more frequently if events or changes in circumstances indicate that the carrying amount may not be recoverable. The Company may first perform a qualitative assessment and, if necessary, a quantitative comparison of the reporting unit’s fair value to its carrying amount.

Acquired intangible assets with finite lives are recorded at fair value at the acquisition date and amortized on a straight-line basis over their estimated useful lives of five to seven years. The Company has no indefinite-lived intangible assets other than goodwill.

Long-lived assets, including property and equipment, right-of-use assets and finite-lived intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. Recoverability is assessed by comparing the carrying amount to the undiscounted future cash flows expected to result from the use and eventual disposition of the asset group. If the carrying amount is not recoverable, an impairment loss is recognized for the amount by which the carrying amount exceeds fair value. During the three months ended June 30, 2026 the Company recognized an impairment charge of $135,000, writing off in full the carrying amount of software purchased in a prior year. Following the acquisition of Flipside AI the Company is no longer pursuing commercialization of the software, and no future cash flows are expected from its use or disposition. The charge is presented as a separate line within operating expenses. No impairment of goodwill or of other long-lived assets was recorded in any period presented.

Cash consists of demand deposits held with financial institutions in the United States, Singapore and the Philippines. The Company had no cash equivalents at June 30, 2026 or December 31, 2025. Balances held at these institutions may exceed applicable deposit insurance limits.

Accounts receivable are recorded at invoiced amounts, net of an allowance for credit losses, and do not bear interest. The Company’s trade receivables are short-term in nature and are evaluated as a single portfolio segment and class of financing receivable. The Company measures expected credit losses over the contractual life of the receivables under ASC 326, Financial Instruments—Credit Losses, using an approach that considers historical loss experience, the aging of balances, customer-specific circumstances and reasonable and supportable forecasts of economic conditions. Receivables are considered past due when payment is not received by the contractual due date. Balances are written off when the Company determines that collection is no longer probable and all practical collection efforts have been exhausted, and recoveries of amounts previously written off are recognized in the period received.

Property and equipment are stated at cost less accumulated depreciation. Depreciation is computed on a straight-line basis over estimated useful lives ranging from three to ten years. Leasehold improvements are amortized over the shorter of the lease term or the estimated useful life. Expenditures for maintenance and repairs are charged to expense as incurred.

The Company determines whether an arrangement is a lease at inception under ASC 842. Operating lease right-of-use assets and lease liabilities are recognized at the commencement date based on the present value of lease payments over the lease term, discounted using the incremental borrowing rate when the rate implicit in the lease is not readily determinable. Lease expense for operating leases is recognized on a straight-line basis over the lease term.

The Company recognizes revenue under ASC 606, Revenue from Contracts with Customers. Revenue is recognized when control of the promised services is transferred to the customer in an amount that reflects the consideration the Company expects to be entitled to in exchange for those services. The Company applies the five-step model: identification of the contract, identification of the performance obligations, determination of the transaction price, allocation of the transaction price to the performance obligations, and recognition of revenue as the performance obligations are satisfied.

Substantially all revenue is generated by Flipside AI from data engineering and content services. Services are provided under arrangements that represent a single performance obligation satisfied over time as the services are rendered, and revenue is recognized as the work is performed. Payment terms are generally 30 to 60 days from invoice and contracts do not contain significant financing components, variable consideration or rights of return.

Revenue of $1,110,112 for the three months ended June 30, 2026 was derived entirely from data engineering and content services performed by Flipside AI in the Philippines for customers located principally in the United States and Europe, and was recognized over time as the services were rendered. Because all revenue arises from a single service line and is recognized over time, the Company has determined that no further disaggregation by service line or timing of transfer is necessary to depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. Revenue disaggregated by the country in which the customer is located is presented in Note 14.

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and accounts receivable. For the three months ended June 30, 2026, four customers each accounted for 10% or more of revenue, with individual concentrations ranging from 15.0% to 24.0% and representing 76.2% of revenue in the aggregate. At June 30, 2026, four customers each accounted for 10% or more of accounts receivable, with individual concentrations ranging from 16.2% to 20.9% and representing approximately 75.9% of the balance in the aggregate. The Company does not require collateral and monitors the credit standing of its customers on an ongoing basis.

The Company maintains an unfunded non-contributory defined benefit retirement plan covering substantially all of its regular employees, in accordance with the provisions of Republic Act No. 7641 of the Philippines. The Company accounts for the plan in accordance with ASC Topic 715, Compensation – Retirement Benefits. The year-over-year change in the obligation, reflecting changes in compensation, service, and the Company's attrition experience, is recognized as retirement expense in the period in which it occurs.

The Company accounts for income taxes under ASC 740. For interim periods, income tax expense is determined under ASC 740-270 by applying an estimated annual effective tax rate to year-to-date pre-tax results, adjusted for discrete items. The consolidated provision reflects income taxes of the Philippine subsidiary, net of the deferred tax benefit arising on amortization of acquired intangible assets. A valuation allowance is recorded against deferred tax assets when it is more likely than not that they will not be realized. Flipside AI is registered with the Philippine Economic Zone Authority, and its income tax position reflects the incentives available under that registration.

The carrying amounts of cash, accounts receivable, accounts payable and accrued liabilities approximate fair value because of the short-term nature of these instruments. The Company’s borrowings are carried at amortized cost; the seller convertible note was initially recorded at fair value determined using an imputed interest rate.

The Company accounts for convertible debt instruments in accordance with ASC 470-20. Conversion features that are not required to be bifurcated as derivatives are not separately accounted for, and no beneficial conversion feature is recognized.

Share-based payments to employees, directors and non-employees are measured at the grant-date fair value of the award and recognized as expense over the requisite service period. Shares issued for services are measured at the fair value of the equity instruments issued.

Basic net loss per share is computed by dividing net loss by the weighted average number of shares outstanding during the period. Diluted net loss per share is the same as basic for all periods presented because the effect of potentially dilutive securities, including shares issuable on conversion of the convertible debentures and the seller convertible note and unvested performance stock units, would be antidilutive. The maximum number of shares issuable on conversion of the Company’s convertible debt at June 30, 2026 was 1,660,000, consisting of 1,060,000 shares under the 9% convertible debentures (computed on $530,000 of outstanding principal at the $0.50 per share conversion floor, which yields the maximum share count) and 600,000 shares under the seller convertible note ($450,000 face amount at $0.75 per share).

The Company operates as a single operating segment and a single reportable segment. Segment and entity-wide information is presented in Note 14.

The Company adopted ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. Adoption affected disclosure only and had no effect on financial position or results of operations. ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, is effective for the Company’s annual period ending December 31, 2026 and is expected to affect disclosure only. Management has evaluated other recently issued accounting pronouncements and does not believe that any will have a material effect on the condensed consolidated financial statements upon adoption.