10-Q: First America Resources Reports Q3 Revenue Growth Amid Profit Decline

First America Resources Corporation reported a 19% increase in Q3 revenue to $5.47 million, but net income fell to $213,761 as operating expenses rose significantly.

Summary

• Revenue for the three months ended September 30, 2025, increased by 19% to $5,470,273 from $4,582,419 in the prior year period.
• Revenue for the nine months ended September 30, 2025, increased by 15% to $14,318,108 from $12,437,307 in the prior year period.
• Gross margin for the three months ended September 30, 2025, was 54%, down from 57% in the prior year.
• Gross margin for the nine months ended September 30, 2025, was 54%, down from 55% in the prior year.
• Operating expenses for the three months increased by 21% to $2,689,090, driven by expansion, merger-related professional fees, and higher payroll and rent.
• Operating expenses for the nine months increased by 18% to $7,442,153, similarly driven by expansion and merger costs.
• Income from operations for the three months decreased to $247,537 from $404,775 in the prior year.
• Income from operations for the nine months decreased to $247,105 from $577,024 in the prior year.
• Net income for the three months decreased to $213,761 from $379,918 in the prior year.
• Net income for the nine months slightly decreased to $501,013 from $510,448 in the prior year, but included a $346,000 Employee Retention Credit.
• Cash balance at September 30, 2025, was $399,894, down from $459,022 at December 31, 2024.
• Cash provided by operating activities for the nine months significantly decreased to $128,862 from $474,991 in the prior year.
• The company completed a reverse acquisition of METech Recycling, Inc. on April 16, 2025, issuing 80,000,000 shares.

Sentiment

Score: 3

Explanation: Despite revenue growth, the company experienced significant declines in operating income and net income (excluding a one-time credit), coupled with a sharp reduction in cash generated from operations. Increased reliance on debt, some at high interest rates, and the explicit mention of a potential need for additional capital raise indicate financial strain and operational challenges.

Positives

• Strong revenue growth of 19% for the three months and 15% for the nine months ended September 30, 2025, indicating business expansion.
• The company received an Employee Retention Credit totaling $346,000 during the nine months ended September 30, 2025, boosting other income.
• Total stockholders' deficit improved from $(1,368,998) at December 31, 2024, to $(867,985) at September 30, 2025.
• Total liabilities decreased from $8,242,219 at December 31, 2024, to $7,516,075 at September 30, 2025.

Negatives

• Net income for the three months ended September 30, 2025, decreased by 43.7% to $213,761 from $379,918 in the prior year.
• Income from operations for the three months decreased by 38.8% to $247,537 from $404,775 in the prior year.
• Income from operations for the nine months decreased by 57.2% to $247,105 from $577,024 in the prior year.
• Gross margin declined from 57% to 54% for the three months and from 55% to 54% for the nine months.
• Operating expenses increased significantly by 21% for the three months and 18% for the nine months, outpacing revenue growth.
• Cash provided by operating activities for the nine months decreased substantially by 72.9% to $128,862 from $474,991 in the prior year.
• The company's cash balance decreased to $399,894 at September 30, 2025, from $459,022 at December 31, 2024.
• Increased interest expenses, with management expecting further increases due to additional funding needs.
• The company entered into several new note payable agreements, some with high interest rates (e.g., 17%, 29.93%).

Risks

• Substantial risks and uncertainty are involved in forward-looking statements, including assumptions and projections concerning assets under management, net cash inflows and outflows, operating cash flows, and future credit facilities.
• The company may need to raise additional debt or equity capital to fund its operations, and there can be no assurance that it will be able to do so or on acceptable terms.

Future Outlook

Management expects revenues to continue to increase year-over-year. Operating expenses are anticipated to increase with revenues as the company expands operations. Interest expenses are projected to rise as the company obtains additional funding. Cash used in operating activities is expected to be neutral, while investing expenditures and financing activities are expected to increase as the company expands and utilizes financing.

Management Comments

• "We expect revenues to continue to increase on a year-over-year basis."
• "We expect operating expenses to continue to increase with revenues as the Company expands operations."
• "We expect interest expenses to increase as the Company obtains additional funding."
• "We expect cash used in operating activities to be neutral as the Company expands operations."
• "We expect investing expenditures to increase as the Company expands operations."
• "We expect financing receipts and expenditures to increase as the Company utilizes financing to expand operations."
• "The Company may need to raise additional debt or equity capital in order to fund its operations."
• Jian Li, Principal Executive Officer and Principal Financial Officer, concluded that the company's disclosure controls and procedures were effective as of September 30, 2025.

Industry Context

The company, through its subsidiary METech Recycling, Inc., specializes in electronic waste management and IT asset disposition (ITAD), providing certified recycling, secure data destruction, and IT asset management. This positions the company within the growing e-waste and ITAD industry, driven by increasing electronic consumption and regulatory requirements for responsible disposal. The filing does not provide specific industry trends or competitor analysis.

Comparison to Industry Standards

• NA

Corporate Governance

Legal Proceedings

• No material litigation or regulatory matters are currently involved.

Related Party Transactions

• Outstanding notes payable due to First American Management Group Corp (largest shareholder) totaled $556,000 at September 30, 2025, and December 31, 2024.
• Outstanding notes payable due to First America Metal Corp (FAMC, second largest shareholder, Customer A, Vendor A) totaled $657,000 at September 30, 2025, up from $157,000 at December 31, 2024.
• Accounts payable due to FAMC totaled $1,167,000 at September 30, 2025, down from $2,303,000 at December 31, 2024.
• Accounts receivable due from FAMC totaled $220,000 at September 30, 2025, down from $466,000 at December 31, 2024.
• Outstanding notes payable due to the former owner of METech totaled $32,000 at September 30, 2025, down from $250,000 at December 31, 2024.

Stakeholder Impact

• Shareholders face potential dilution risk if equity capital is raised to fund operations, and continued stock price volatility due to declining profitability and cash flow.
• Employees may see continued employment and potential growth due to business expansion, but declining profitability could pose future risks.
• Customers demonstrate ongoing demand for e-waste management services, as evidenced by continued revenue growth.
• Suppliers and creditors are impacted by increased accounts payable and new debt issuances, indicating reliance on credit and supplier relationships, particularly with related party FAMC.
• Creditors face higher credit risk due to increased debt, some at high interest rates, and the company's stated need for additional funding.

Next Steps

• Continue to expand operations, which is expected to lead to increased revenues, operating expenses, investing expenditures, and financing activities.
• Evaluate the impacts of the adoption of ASU 2025-05 on the Consolidated Financial Statements, effective for the fiscal year ending December 31, 2026.

Key Dates

Recommendation

Despite revenue growth, the company's core profitability and operational cash flow have deteriorated significantly. The nine-month net income was artificially boosted by a one-time Employee Retention Credit, masking a weaker underlying performance. The company is increasingly reliant on debt, some at high interest rates, and explicitly states a potential need for further capital raises, which could lead to dilution for existing shareholders or increased financial leverage. These factors point to a challenging financial outlook and increased risk for investors.

Keywords

Electronic waste management, IT asset disposition, E-waste recycling, ITAD, Sustainability, Material recovery, Data destruction, R2-certified, Reverse acquisition, METech Recycling, First America Resources