AI Financial Corp 10-K

ITEM 1A. RISK FACTORS Index to Risk Factors Section Page Number Risks Relating to Our Business Generally 9 Risks Relating to our Fintech Segment 11 Risks Relating to Our Biotechnology Segment 19 Risk Relating to Ownership of Our Common Stock 20 You should carefully consider the risks described below with respect to an investment in our shares. If any of the following risks actually occur, our business, financial condition, operating results or cash provided by operations could be materially harmed. As a result, the trading price of our common stock could decline, and you might lose all or part of your investment. When evaluating an investment in our common stock, you should also refer to the other information in this Form 10-K, including our consolidated financial statements and related notes. Risks Relating to Our Business Generally We have identified and disclosed material weaknesses in our internal control over financial reporting. If we are not able to remediate these material weaknesses and maintain an effective system of internal controls, we may not be able to accurately or timely report our financial results, which could cause our stock price to fall and could adversely affect investor confidence and our ability to maintain compliance with Nasdaq listing requirements. We need to devote significant resources and time to comply with the requirements of the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”) with respect to internal control over financial reporting. Section 404 under Sarbanes-Oxley requires that we assess the design and operating effectiveness of our controls over financial reporting, which are necessary for us to provide reliable and accurate financial reports. As reported in Part II — Item 9A, Controls and Procedures, there were material weaknesses in our internal controls over financial reporting. Specifically, management noted the following material weaknesses in internal control: (1) insufficient information technology general controls and segregation of duties, where individuals negotiating contracts were also involved in approving invoices without proper oversight; (2) inadequate control design or lack of sufficient controls over significant accounting processes, including ineffective cutoff and reconciliation procedures with respect to certain accrued and deferred expenses; (3) insufficient assessment of the impact of potentially significant transactions; and (4) insufficient processes and procedures related to proper recordkeeping of agreements and contracts, including ineffective contract-to-invoice reconciliation with certain service providers. Remediation processes and procedures have been implemented to help ensure accruals and invoices are reviewed for accuracy and properly recorded in the appropriate period. We expect our systems and controls to become increasingly complex to the extent that we integrate acquisitions and as our business grows. Any failure to remediate these material weaknesses and implement required new or improved controls, or difficulties encountered in the implementation or operation of these controls, could harm our operating results or cause us to fail to meet our financial reporting obligations, which could adversely affect our business and jeopardize our listing on the Nasdaq Capital Market. Ineffective disclosure controls and procedures or internal control over financial reporting may adversely affect investor confidence and, as a result, negatively impact the price of our Common Stock and have a material and adverse effect on our business, operating results, and financial condition. 9 Table of Contents If our estimates or judgment relating to our critical accounting estimates prove to be incorrect, our operating results could be adversely affected. The preparation of financial statements in conformity with generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. The results of these estimates form the basis for making judgments about the carrying values of assets, liabilities, and equity, and the amount of expenses that are not readily apparent from other sources. Significant estimates and judgments that comprise our critical accounting estimates involve the valuation of assets acquired and liabilities assumed in business combinations, the recoverability of goodwill and long-lived assets, revenue recognition, and accounting for digital assets. If the assumptions underlying our accounting estimates prove to be incorrect, actual results may differ materially from what we have projected, resulting in material adjustments to our financial statements and adverse impacts to our operating results. If we fail to maintain an effective system of disclosure controls and procedures and internal control over our financial reporting, our ability to produce timely and accurate financial statements or comply with applicable regulations could be impaired. As a public company we incur significant legal, accounting, and other expenses. The Sarbanes-Oxley Act of 2002 and related rules of the SEC require, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. In order to maintain and, if required, improve our disclosure controls and procedures and internal control over financial reporting to meet this standard, we have expended, and anticipate that we will continue to expend, significant resources, including accounting-related costs and significant management oversight. If we encounter material weaknesses or deficiencies in our internal control over financial reporting, we may not detect errors on a timely basis and our Consolidated Financial Statements may be materially misstated. Management is responsible for establishing and maintaining adequate internal control over financial reporting. Management, with the participation of the Company’s principal executive officer and principal financial officer, conducted an evaluation of the design and effectiveness of the Company’s internal control over financial reporting based on the criteria set forth in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this evaluation, management concluded that the Company’s internal control over financial reporting was not effective due to the existence of material weaknesses. Adverse economic conditions and volatility in crypto asset markets could reduce transaction volumes, customer activity, and access to banking and capital, which could adversely affect our business. Our performance is subject to general economic conditions and their impact on the crypto asset markets and our customers. Adverse general economic conditions, including recessions, inflation, rising interest rates, supply chain disruptions, bank failures, and geopolitical instability, have impacted and may in the future impact the crypto-economy. The extent of such impacts remains uncertain and dependent on a variety of factors, including market adoption of crypto assets, global trends in the crypto-economy, central bank monetary policies, and instability in the global banking system. Geopolitical developments, such as trade and tariff conflicts and foreign exchange limitations, can increase the severity and unpredictability of global financial and crypto asset market volatility. To the extent general economic conditions and crypto asset markets materially deteriorate or decline for a prolonged period, our ability to generate revenue and attract and retain customers could suffer and our business, operating results, and financial condition could be adversely affected. Moreover, even if general economic conditions were to improve, there is no guarantee that the crypto-economy would similarly improve. We may require additional capital to support business growth, and this capital might not be available. We have funded our operations since inception primarily through equity financings, debt, and cash flows generated from operations. We cannot be certain that our operations will continue to fund our ongoing operations or the growth of our business. We intend to continue to make investments in our business, which investments may require us to secure additional funds. Additional financing may not be available on terms favorable to us, if at all, including due to general macroeconomic conditions, crypto market conditions and any disruptions in the crypto market, instability in the global banking system, increasing regulatory uncertainty and scrutiny, or other unforeseen factors. 10 Table of Contents If we incur additional debt, the debt holders would have rights senior to holders of our Common Stock to make claims on our assets, and the terms of any debt could restrict our operations, including our ability to pay dividends on our Common Stock. If we issue additional equity securities, stockholders will experience dilution, and the new equity securities could have rights senior to those of our currently authorized and issued Common Stock. The trading prices for our Common Stock may be highly volatile, which may reduce our ability to access capital on favorable terms or at all. As a result, our stockholders bear the risk of future issuances of debt or equity securities reducing the value of our Common Stock and diluting their interests. We may be adversely affected by natural disasters, pandemics, and other catastrophic events, and by man-made problems such as terrorism, that could disrupt our business operations, and our business continuity and disaster recovery plans may not adequately protect us from a serious disaster. Natural disasters or other catastrophic events may also cause damage or disruption to our operations, international commerce, and the global economy. Our business operations are subject to interruption by natural disasters, fire, power shortages, pandemics, and other events beyond our control. Acts of terrorism, labor unrest, and other geopolitical unrest, including ongoing regional conflicts around the world, could cause disruptions to our business or the businesses of our partners. In the event of a major natural disaster or catastrophic event such as a fire, power loss, or telecommunications failure, we may be unable to continue our operations and may endure system interruptions, reputational harm, delays in development of our platform, lengthy interruptions in service, breaches of data security, and loss of critical data, all of which could have an adverse effect on our future operating results. We do not maintain insurance sufficient to compensate us for the potentially significant losses that could result from disruptions to our services. To the extent natural disasters or catastrophic events concurrently impact data centers we rely on in connection with private key restoration, customers will experience significant delays in withdrawing funds, or in the extreme, we may suffer loss of customer funds. Our operations in multiple foreign jurisdictions expose us to political, regulatory, legal, and currency risks that could adversely affect our business. We operate subsidiaries and conduct business activities in multiple foreign jurisdictions, including Lithuania, the Czech Republic, Canada, and Saint Vincent and the Grenadines. Operating in these jurisdictions exposes us to risks that are different from and incremental to those we face in the United States, including: (i) differing and evolving legal, regulatory, and licensing requirements for financial services, money transmission, and digital asset activities; (ii) political instability, currency controls, and changes in governmental policy; (iii) foreign currency exchange rate fluctuations that could affect our results of operations when translated back to U.S. dollars; (iv) varying data privacy and cybersecurity laws that may be inconsistent with our global practices; and (v) tax laws and treaty arrangements that may be subject to change, creating retroactive or unexpected tax liabilities. Any adverse developments in these jurisdictions, including regulatory actions that restrict our ability to operate, could have a material adverse effect on our business, financial condition, and results of operations. Risks Relating to Our Fintech Segment Our operating results have and will continue to significantly fluctuate, including due to the highly volatile nature of crypto assets. Due to the highly volatile nature of the crypto economy and the prices of crypto assets, our operating results have, and will continue to, fluctuate significantly from quarter to quarter in accordance with market sentiments and movements in the broader crypto-economy. Our operating results will continue to fluctuate significantly as a result of a variety of factors, many of which are unpredictable and in certain instances are outside of our control, including: ● crypto asset trading activity, including trading volume and the prevailing trading prices for crypto assets, which can be highly volatile; ● our ability to attract, maintain, grow, and engage our customer base; 11 Table of Contents ● changes in the legislative or regulatory environment, or actions by U.S. or foreign governments or regulators, including fines, orders, or consent decrees; ● regulatory changes or scrutiny that impact our ability to offer certain products or services; ● pricing for or temporary suspensions of our products and services; ● our ability to establish and maintain partnerships, collaborations, joint ventures, or strategic alliances with third parties; ● market conditions of, and overall sentiment towards, the crypto-economy; ● macroeconomic conditions, including interest rates, inflation, and instability in the global banking system; ● adverse legal proceedings or regulatory enforcement actions, judgments, settlements, or other legal proceedings, and enforcement-related costs; ● the development and introduction of existing and new products and services by us or our competitors; ● the amount and timing of our operating expenses related to the maintenance and expansion of our business and operations; ● system failures, outages, or interruptions, including with respect to our platform and third-party crypto networks; ● our lack of control over decentralized or third-party blockchains and networks that may experience downtime, cyberattacks, critical failures, errors, bugs, corrupted files, data losses, or other similar software failures, outages, breaches, and losses; ● breaches of security or privacy; ● inaccessibility of our platform due to our or third-party actions; ● our ability to attract and retain talent; and ● our ability to compete with our competitors. As a result of these factors, it is difficult for us to forecast growth trends accurately and our business and future prospects are difficult to evaluate, particularly in the short term. In view of the rapidly evolving nature of our business and the crypto-economy, period-to-period comparisons of our operating results may not be meaningful, and you should not rely upon them as an indication of future performance. Our operating results in one or more future quarters may fall below the expectations of securities analysts and investors. As a result, the trading price of our Common Stock may increase or decrease significantly. Our total fintech revenue is substantially dependent on the volume of transactions conducted on our platform. If volume declines, our business, operating results, and financial condition would be adversely affected. We generate a large portion of our total fintech revenue from transaction fees on our platform. Transaction revenue is based on transaction fees, and such revenue has grown over time. Declines in the volume of crypto asset transactions may result in lower total revenue. The price of crypto assets and associated demand for buying, selling, and trading crypto assets have historically been subject to significant volatility. The transaction volume of any crypto asset is subject to significant uncertainty and volatility, depending on a number of factors, including: ● market conditions of, and overall sentiment towards, crypto assets and the crypto-economy; ● trading activities on other crypto platforms worldwide, many of which may be unregulated, and may include manipulative activities; ● investment and trading activities of highly active consumer and institutional users, speculators, miners, and investors; ● the speed and rate at which crypto is able to gain adoption as a medium of exchange, utility, store of value, consumptive asset, security instrument, or other financial asset worldwide; ● decreased user and investor confidence in crypto assets and crypto platforms; 12 Table of Contents ● negative publicity and events relating to the crypto-economy; ● the ability for crypto assets to meet user and investor demands; ● consumer preferences and perceived value of crypto assets and crypto asset markets; ● increased competition from other payment services or other crypto assets that may exhibit better speed, security, scalability, or other characteristics; ● adverse legal proceedings or regulatory enforcement actions impacting crypto-economy participants; ● regulatory or legislative changes, scrutiny, and updates affecting the crypto-economy; ● the characterization of crypto assets under the laws of various jurisdictions around the world; ● the adoption of unfavorable taxation policies on crypto asset investments by governmental entities; ● ongoing technological viability and security of crypto assets and their associated smart contracts, applications, and networks; ● speed and fees associated with processing crypto asset transactions; ● availability of banking and payment services to support crypto-related projects; ● instability in the global banking system and the level of interest rates and inflation; ● monetary policies of governments, trade restrictions, and fiat currency devaluations; and ● national and international economic and political conditions. There is no assurance that any supported crypto asset will maintain its value or that there will be meaningful levels of trading activity. In the event that the price of crypto assets or the demand for trading crypto assets declines, our business, operating results, and financial condition would be adversely affected. Cyberattacks and security breaches of our platform, or those impacting our customers or third parties, could adversely affect our brand, reputation, business, operating results, and financial condition. Our business involves the collection, storage, processing, and transmission of confidential information, customer, employee, service provider, and other personal data, as well as information required to access customer assets. We have built our reputation on the premise that our platform offers customers a secure way to purchase, store, and transact in crypto assets. Any actual or perceived security breach of us or our third-party partners may: harm our reputation and brand; result in our systems or services being unavailable and interrupt our operations; result in improper disclosure of data and violations of applicable privacy and data protection laws; result in significant regulatory scrutiny, investigations, fines, penalties, and other legal, regulatory, and financial exposure; cause us to incur significant remediation costs; lead to theft or irretrievable loss of our or our customer’s fiat currencies or crypto assets; reduce customer confidence in, or decrease customer use of, our products and services; divert the attention of management from the operation of our business; and result in significant compensation or contractual penalties payable by us to our customers or third parties. Attacks upon systems across a variety of industries, including the crypto industry, are increasing in their frequency, persistence, and sophistication, and, in many cases, are being conducted by sophisticated, well-funded, and organized groups and individuals, including state actors. The techniques used to obtain unauthorized, improper, or illegal access to systems and information, disable or degrade services, or sabotage systems are constantly evolving, may be difficult to detect quickly, and often are not recognized or detected until after they have been launched against a target. Although we have developed systems and processes designed to protect the data we manage, prevent data loss, and prevent other security breaches, there can be no assurance that these security measures will provide absolute security or prevent breaches or attacks. 13 Table of Contents The loss or destruction of private keys required to access our digital assets or those of our customers could result in permanent, irrecoverable loss. Our platform and custodial operations require the storage and management of private keys, which are necessary to access and transfer digital assets on blockchain networks. The loss, theft, destruction, or compromise of private keys — whether through cyberattack, employee error, system failure, or inadequate backup procedures — could result in the permanent and irrecoverable loss of digital assets, for which there is no technical remedy. Unlike traditional financial assets, blockchain transactions are generally irreversible, and there is no central authority or counterparty recovery mechanism available to restore lost or stolen crypto assets. Any such loss could result in significant financial harm to our customers and to us, reputational damage, regulatory investigations, and potential litigation. We maintain security measures and procedures to mitigate private key risk, but no assurance can be given that these measures will be sufficient in all circumstances. We are subject to an extensive, highly-evolving, and uncertain regulatory landscape and any adverse changes to, or our failure to comply with, any laws and regulations could adversely affect our brand, reputation, business, operating results, and financial condition. Our business is subject to extensive laws, rules, regulations, policies, orders, determinations, directives, treaties, and legal and regulatory interpretations and guidance in the markets in which we operate, including those governing financial services and banking, trust companies, securities, derivative transactions and markets, broker-dealers and alternative trading systems (“ATS”), commodities, credit, crypto asset custody, exchange and transfer, cross-border and domestic money and crypto asset transmission, commercial lending, usury, foreign currency exchange, privacy, data governance, data protection, cybersecurity, fraud detection, payment services, consumer protection, escheatment, antitrust and competition, bankruptcy, tax, anti-bribery, economic and trade sanctions, anti-money laundering, and counter-terrorist financing. Many of these legal and regulatory regimes were adopted prior to the advent of the internet, mobile technologies, crypto assets, and related technologies and may not directly apply to our fintech business. As a result, some applicable laws and regulations do not contemplate or address unique issues associated with the crypto-economy, are subject to significant uncertainty, and vary widely across U.S. federal, state, and local and international jurisdictions. Governmental and regulatory bodies may introduce new policies, laws, and regulations relating to crypto assets and the crypto-economy generally, and crypto asset platforms in particular, which may adversely impact the development of the crypto-economy as a whole and our legal and regulatory status. If we are unable to comply with any new requirements, our ability to offer our products and services in their current form may be adversely affected. Due to our business activities, we are subject to ongoing examinations, oversight, and reviews and currently are, and expect in the future, to be subject to investigations and inquiries by U.S. federal and state regulators and foreign financial service regulators. As a result of findings from these audits and examinations, regulators may require us to take certain actions, including limiting the kinds of customers to whom we provide services, changing, terminating, or delaying our licenses and the introduction of new products or services. Adverse changes to, or our failure to comply with, any laws and regulations have had, and may continue to have, an adverse effect on our reputation, brand, business, operating results, and financial condition. The potential classification of certain crypto assets as securities by the SEC or other regulators could materially impact our business operations and require significant restructuring. The SEC and other regulatory bodies have brought enforcement actions and issued guidance suggesting that certain crypto assets may qualify as securities under existing law. In March 2026, the SEC issued additional interpretive guidance clarifying its views regarding the application of the federal securities laws to crypto assets and market participants, including expectations relating to the analysis of digital assets under existing legal frameworks and disclosure obligations in offerings involving crypto assets. If bitcoin, ether, or any other crypto asset we support is determined to be a security by the SEC or a court of competent jurisdiction, we could face registration requirements, enforcement actions, fines, and the need to restructure, limit, or discontinue certain product offerings. In addition, the SEC’s evolving guidance and enforcement posture may increase regulatory scrutiny of our products, services, platform operations and customer activities, and could require changes to our compliance, onboarding, custody, trading or disclosure practices. The Commodity Futures Trading Commission (“CFTC”) joined the interpretive effort and indicated that it and its staff will administer the Commodity Exchange Act consistent with the Commission’s interpretation, which may result in additional oversight of digital asset activities within the CFTC’s jurisdiction. Such a determination could also result in delisting obligations, reputational harm, and loss of customer trust. The legal and regulatory framework governing which digital assets constitute securities remains uncertain, evolving, and subject to varying interpretations across jurisdictions, which creates ongoing compliance risk. Evolving tax treatment of digital assets creates uncertainty in our tax obligations and potential retroactive liabilities. The IRS and international tax authorities are actively developing and revising guidance regarding the tax treatment of digital assets, including classification as property, currency, or securities; reporting obligations for exchanges and custodians; treatment of staking rewards, hard forks, and airdrops; and information reporting requirements. We are subject to various tax regimes in the jurisdictions in which we operate, and changes in applicable tax laws or guidance could increase our tax liability, require changes to our reporting practices, and result in retroactive tax assessments. Customers transacting in crypto assets may also face complex and evolving tax reporting obligations, and any failure on our part to provide required tax information or withhold applicable taxes could subject us to regulatory liability. The cost and complexity of complying with evolving tax requirements may be significant and could adversely affect our business, operating results, and financial condition. 14 Table of Contents We are exposed to risks from blockchain forks and from the decentralized and open-source nature of blockchain protocols, which could disrupt our platform operations, compromise network integrity, and create uncertainty regarding supported digital assets. Blockchain networks can undergo “forks” — either “hard forks” that create a permanent divergence resulting in two separate blockchain protocols, or “soft forks” that implement protocol updates in a backward-compatible manner. Forks may occur as a result of deliberate protocol upgrades, community disagreements, or security vulnerabilities. A fork of a blockchain network that we support could: create duplicate digital assets for which we may need to determine which chain to recognize; disrupt trading operations and create temporary or extended platform downtime; require significant engineering resources to evaluate, integrate, or decline to support the forked chain; create compliance uncertainty regarding which assets are subject to regulatory requirements; and result in customer losses or claims if our handling of a fork is inconsistent with customer expectations. Our policies regarding the handling of forked assets may not fully protect customers or our business from the consequences of unexpected or contentious network forks. In addition, the blockchain networks on which we operate and through which our customers transact are largely decentralized and governed by open-source protocols. These networks are vulnerable to risks that include: a malicious actor or group of actors gaining control of a majority (more than 50%) of the hashing power or validation capacity of a blockchain network (a “51% attack”), which could enable such actors to reverse or double-spend transactions, create fraudulent transaction histories, or destabilize the network; bugs, errors, or malicious changes introduced into open-source code by developers or other contributors; protocol-level vulnerabilities that may be exploited by sophisticated attackers; and failures or malicious behavior by validators, miners, or node operators on which network security depends. Any such events affecting a blockchain network we rely upon could result in loss of assets, platform disruption, reputational harm, and financial loss to our customers and to us. Our platform is exposed to chargeback, fraud, and unauthorized transaction losses, particularly in connection with our payment card and fiat-linked services. Our fintech platform and, following our acquisition of Fortress II Holdings and its Mswipe payment card operations, our payment services business are exposed to risks of chargebacks, fraudulent transactions, and unauthorized account access. Customers may initiate chargebacks through their card issuers or payment networks, including Visa® and Mastercard®, for transactions they dispute, and we may be required to absorb those losses if we are unable to recover funds from our counterparties. Unauthorized access to customer accounts, account takeovers, and identity fraud could result in significant transaction losses. Our ability to mitigate these risks depends on our fraud detection and prevention capabilities, compliance with card network rules, and the effectiveness of our KYC and authentication procedures. Any material increase in chargeback rates or fraud losses could adversely affect our financial condition and our relationships with card networks and banking partners. Customer crypto assets held on our platform are not insured by the FDIC or SIPC, and customers could suffer losses in the event of platform failure. Unlike bank deposits, which may be protected by the Federal Deposit Insurance Corporation (“FDIC”) up to applicable limits, digital assets held on our platform are not insured by the FDIC, the Securities Investor Protection Corporation (“SIPC”), or any other governmental or private insurance program. In the event of our insolvency, bankruptcy, cybersecurity breach, or operational failure, customers may not be able to recover any or all of their digital assets. We maintain certain security and custody practices intended to protect customer assets, but no assurance can be provided that these protections will be sufficient under all circumstances. Customers should be aware of and understand this risk before entrusting assets to our platform. 15 Table of Contents Our banking and financial institution relationships may be disrupted, which could have a material adverse effect on our ability to operate. Banking institutions have in the past and may in the future limit, restrict, or terminate their relationships with crypto companies, including ALT5 Sigma Canada. The loss of existing bank accounts, correspondent banking arrangements, or payment processing relationships could significantly impair our ability to receive and transmit fiat currency on behalf of customers, fund operations, and settle transactions. Regulatory pressure on banks to limit their exposure to crypto-related businesses could result in our current banking relationships being terminated on short notice. Finding replacement banking partners could be difficult, time-consuming, and may not be possible on equivalent terms. Any disruption in our banking relationships could materially adversely affect our business, liquidity, and financial condition. We are subject to extensive anti-money laundering, counter-terrorism financing, know-your-customer and economic sanctions obligations, and our failure to comply with these requirements, including those administered by the U.S. Treasury’s Office of Foreign Assets Control (“OFAC”), could subject us to significant penalties and adversely affect our business. As a financial services company and crypto asset platform, we are required to comply with a broad and evolving set of anti-money laundering (“AML”), counter-terrorism financing (“CTF”), know your client (“KYC”) protocols, and sanctions requirements in the United States and the foreign jurisdictions in which we operate. The decentralized and pseudonymous nature of public blockchain networks means that we may inadvertently receive, process, or interact with transactions involving digital wallet addresses associated with persons or entities designated on OFAC’s Specially Designated Nationals and Blocked Persons list or other sanctions lists. Unlike traditional financial transactions where parties are identified before settlement, blockchain transactions may not permit full pre-transaction due diligence, particularly where privacy-enhancing features or decentralized protocols are involved. Any determination by OFAC or other regulators that we have facilitated transactions involving sanctioned parties, failed to maintain effective AML, CTF, or KYC controls, or otherwise violated applicable laws — even inadvertently — could subject us to significant civil and criminal penalties, reputational damage, and loss of licenses or banking relationships. We implement compliance programs designed to screen transactions and counterparties against applicable sanctions lists and to satisfy AML, CTF, and KYC requirements, but the effectiveness and completeness of these measures cannot be guaranteed in all circumstances. We also support crypto assets and technologies that may incorporate privacy-enhancing features, which can obscure the identities of transaction parties and increase our exposure to AML and sanctions-related risks. In addition, evolving regulatory requirements, including the Financial Action Task Force “Travel Rule” and similar international information-sharing obligations, impose additional compliance burdens that may be costly to implement and may impact our ability to offer certain products or services in particular jurisdictions. Regulatory, investor and market focus on climate-related risks and the environmental impact of digital asset networks may impose additional compliance costs and reputational risks on our business. Governments, regulatory bodies, and investors are increasingly focused on climate-related risks, energy usage, and sustainability considerations associated with digital asset networks, particularly those that rely on energy-intensive consensus mechanisms. Although our fintech business model as an exchange and payment platform is less energy-intensive than bitcoin mining operations, we may nonetheless face increased scrutiny from investors, regulators, and the public regarding the environmental characteristics of the blockchain networks we support. In addition, evolving regulatory frameworks and investor expectations relating to climate-related disclosures, sustainability practices, or transition risk may impose new reporting obligations, require changes to our disclosures or business practices, or limit our ability to support certain digital assets or networks. Failure to appropriately address or adapt to these evolving expectations could result in reputational harm, reduced investor demand for our securities, increased compliance costs, or limitations on our business activities, any of which could adversely affect our business, financial condition and results of operation. Any significant disruption in our products and services, in our information technology systems, or in any of the blockchain networks we support, could result in a loss of customers or funds and adversely affect our brand, reputation, business, operating results, and financial condition. Our reputation and ability to attract and retain customers and grow our business depends on our ability to operate our service at high levels of reliability, scalability, and performance, including the ability to process and monitor, on a daily basis, a large number of transactions that occur at high volume and frequencies across multiple systems. The systems of our third-party service providers and certain crypto asset and blockchain networks have experienced, and may experience in the future, service interruptions or degradation because of hardware and software defects or malfunctions, distributed denial-of-service and other cyberattacks, insider threats, earthquakes, hurricanes, floods, fires, and other natural disasters, power losses, disruptions in telecommunications services, fraud, military or political conflicts, terrorist attacks, computer viruses or other malware, or other events. 16 Table of Contents If any of our systems, or those of our third-party service providers, are disrupted for any reason, our products and services may fail, resulting in unanticipated disruptions, slower response times and delays in our customer’s trade execution and processing, failed settlement of trades, incomplete or inaccurate accounting, recording or processing of trades, unauthorized trades, loss of customer information, increased demand on limited customer support resources, customer claims, complaints with regulatory organizations, lawsuits, or enforcement actions. Problems with the reliability or security of our systems would harm our reputation, and the cost of remedying these problems could negatively affect our business, operating results, and financial condition. If we fail to retain existing customers or add new customers, or if our customers decrease their level of engagement with our products, services and platform, our business, operating results, and financial condition may be significantly harmed. Our success depends on our ability to retain existing customers and attract new customers, including developers, to increase engagement with our products, services, and platform. To do so, we must continue to offer leading technologies and ensure that our products and services are secure, reliable, and engaging. We must also expand our products and services, and offer competitive prices in an increasingly crowded and price-sensitive market. There is no assurance that we will be able to retain our current customers or attract new customers, or keep our customers engaged. Increased competition from decentralized exchanges, noncustodial platforms, and traditional financial institutions entering the digital asset space could reduce our market share and adversely affect our business. We face intense competition from larger crypto platforms, decentralized networks, traditional financial institutions and payment providers, which could reduce our market share, compress margins and increase customer acquisition costs. The markets for crypto asset exchange, digital payment services, and crypto-related financial services are highly competitive and rapidly evolving. We compete against numerous established and well-funded competitors, including Coinbase, Kraken, Binance, and other large crypto exchanges; decentralized exchanges (DEXs) and noncustodial wallet providers that operate without regulatory oversight or compliance costs; traditional financial institutions that are entering the digital asset space; and payment processing companies. Many of our competitors have significantly greater financial, technical, and marketing resources than we do. Competition could negatively impact our pricing, margins, customer acquisition costs, and overall market position. If we fail to compete effectively, our business, financial condition, and results of operations will be materially adversely affected. We are subject to risks associated with our compliance and risk management methods. Our ability to comply with applicable complex and evolving laws, regulations, and rules is largely dependent on the establishment, maintenance, and scaling of our compliance, internal audit, and reporting systems continuously to keep pace with our customer activity and transaction volume, as well as our ability to attract and retain qualified compliance and other risk management personnel. Our risk management policies and procedures rely on a combination of technical and human controls and supervision that are subject to error and failure. These methods may not adequately prevent losses, particularly as they relate to extreme market movements, which may be significantly greater than historical fluctuations in the market. In the future, we may identify gaps in such policies and procedures or existing gaps may become higher risk, and may require significant resources and management attention. 17 Table of Contents We obtain, process, and store a large amount of sensitive personal and financial data and are subject to evolving data privacy, data protection, and information security laws and regulations, and any failure to protect such data or comply with applicable requirements could adversely affect our business. We obtain, process, and store large amounts of sensitive data, including personal data related to our customers and their transactions, such as their names, addresses, social security numbers, visa information, copies of government-issued identification, facial recognition data from identity verification, trading data, tax identification, and bank account and payment information. We are subject to a variety of federal, state, and international laws and regulations governing privacy, data protection, and e-commerce transactions that require us to safeguard our customers’, employees’, and service providers’ personal data. These laws include, among others, the California Consumer Privacy Act (the “CCPA”), the General Data Protection Regulation (“GDPR”) in the European Union, and other international data protection laws. Privacy and data protection laws continue to evolve and may be interpreted and applied in a manner that is inconsistent with our current data handling safeguards and practices, which could result in fines, penalties, litigation, or regulatory enforcement actions.. Any failure, or perceived failure, by us or our third-party service providers to comply with applicable laws or to prevent unauthorized access to, or use or disclosure of, personal data could result in regulatory investigations, enforcement actions, litigation, reputational harm and significant costs. Our intellectual property rights are valuable, and any inability to protect them could adversely affect our business, operating results, and financial condition. Our business depends in large part on our proprietary technology. We rely on, and expect to continue to rely on, a combination of trade dress, domain name, and trade secrets, as well as confidentiality and license agreements with our employees, contractors, consultants, and third parties with whom we have relationships, to establish and protect our brand and other intellectual property rights. However, our efforts to protect our intellectual property rights may not be sufficient or effective. Our proprietary technology and trade secrets could be lost through misappropriation or breach of our confidentiality and license agreements. There can be no assurance that our intellectual property rights will be sufficient to protect against others offering products, services, or technologies that are substantially similar to ours and that compete with our business. The loss of one or more of our key personnel, or our failure to attract and retain other highly qualified personnel in the future, could adversely affect our business, operating results, and financial condition. We believe that our future success is highly dependent on the talents and contributions of our operating subsidiary’s management team and other key employees across product, engineering, risk management, finance, and marketing. Our future success depends on our ability to attract, develop, motivate, and retain highly qualified and skilled employees. The pool of qualified talent in our industry is extremely limited, particularly with respect to executive talent, engineering, risk management, and financial regulatory expertise. We face intense competition for qualified individuals from numerous software and other technology companies. The loss of even a few key employees or senior leaders, or an inability to attract, retain and motivate additional highly skilled employees required for the planned expansion of our business could adversely affect our business, operating results, and financial condition. 18 Table of Contents Our culture emphasizes innovation, and if we cannot maintain this culture as we grow, our business, operating results, and financial condition could be adversely affected. We believe that our entrepreneurial and innovative corporate culture has been a key contributor to our success. We encourage and empower our employees to develop new and innovative products and services, which we believe is essential to attracting high quality talent, partners, and developers, as well as serving the best, long-term interests of our company. If we cannot maintain this culture as we grow or integrate acquisitions, we could lose the innovation, creativity, and teamwork that has been integral to our operating crypto business. Our acquisition of Fortress II Holdings and its Mswipe payment card operations exposes us to integration, compliance, and operational risks specific to the payments industry. In May 2025, we acquired Fortress II Holdings and its Mswipe business, a payment card processing and issuance platform. This acquisition exposes us to risks that are distinct from our core crypto exchange business, including: (i) the risk that we may not be able to successfully integrate Mswipe’s operations, technology, and personnel into our existing business; (ii) compliance with Visa®, Mastercard®, and other card network rules, which are subject to ongoing changes and impose significant operational requirements; (iii) exposure to losses from fraudulent transactions, chargebacks, and disputes in the payment card industry; (iv) multi-currency settlement risk and the complexities of operating in foreign exchange markets; (v) regulatory requirements applicable to payment processors and money transmitters in the jurisdictions in which Mswipe operates; and (vi) the risk that anticipated synergies from the acquisition may not be realized. Any failure to effectively integrate and operate the Mswipe business could result in financial losses, operational disruptions, and reputational harm. Risks Relating to Our Biotechnology Segment We may be unable to effectuate the planned formal separation of our biotechnology segment, which could adversely affect our financial condition and strategic objectives. We intend to effectuate a formal separation of our biotechnology segment – one possibility of which would be as a separate, independent publicly traded company. The successful effectuation of a formal separation in that manner is subject to numerous conditions and risks, including receipt of any required regulatory approvals, favorable market conditions, satisfactory resolution of legal and financial matters, the execution of separation agreements, and the ability of Alyea to satisfy requirements for listing on a national securities exchange. There can be no assurance that the Board will take this approach in effectuating the formal separation of our biotechnology segment and, if so, that any or all of these conditions will be satisfied or waived in a timely manner or at all. If we determine to take this approach but are unable to complete this type of a transaction, we may pursue alternative strategic options with respect to the biotechnology segment, which could result in additional costs, management distraction, and uncertainty, any of which could adversely affect our financial condition and results of operations. Effectuating a formal separation of our biotechnology segment is complex and may divert management’s attention and consume significant resources, which could adversely affect both the biotechnology segment and our remaining operations. Effectuating a formal separation of our biotechnology segment requires significant time and attention from our senior management team, as well as substantial financial and administrative resources. The separation process may involve, among other things, the negotiation and execution of transition services agreements, the establishment of standalone corporate, legal, financial reporting, and information technology infrastructure for the biotechnology segment, and, depending on the method of such effectuation, the satisfaction of regulatory and exchange listing requirements. These demands may divert management’s attention from our other business segments and ongoing operations. Any disruption to our core operations or failure to adequately plan for the separation could adversely affect our business, financial condition, or results of operations. The biotechnology segment, if formally separated, may be unable to raise sufficient capital to fund its operations and development programs as a standalone entity, which could impair its viability and the value realized by our stockholders. Following the formal separation in whatever manner that is accomplished of the biotechnology segment, it will be required to access the capital markets independently to fund its operations, research and development activities, and general corporate expenses. The biotechnology segment has not generated revenue from product sales, or otherwise, has a history of operating losses that we continue to fund, and will require substantial additional financing to advance its product candidates through clinical development and commercialization. There can be no assurance that Alyea will be able to raise capital on acceptable terms, or at all. Capital raising efforts may be adversely affected by factors outside Alyea’s control, including general market conditions, investor sentiment toward pre-revenue biotechnology companies, interest rate levels, and the overall performance of the equity capital markets. If Alyea is unable to raise sufficient capital, it may be required to delay or discontinue development programs, reduce headcount, or, in the most severe scenarios, cease operations entirely. Any of these outcomes could materially reduce the value of Alyea and adversely affect the value delivered, if at all, to our stockholders in effectuating the formal separation. 19 Table of Contents If effectuating the formal separation results in Alyea becoming a stand-alone publicly traded entity, it may not qualify for or maintain a listing on a national securities exchange, which could impair the liquidity and value of its securities owned by us or, prospectively, by our stockholders. If effectuating the formal separation results in Alyea becoming a stand-alone publicly traded entity, it will be required to meet the initial listing standards of a national securities exchange, including minimum stockholders’ equity, market capitalization, and other financial and governance requirements. There is no assurance that it will satisfy any or all of these requirements at the time the formal separation is effectuated or that it will be able to maintain its listing thereafter. If Alyea fails to qualify for or maintain an exchange listing, its securities may trade only on the over-the-counter market, which could significantly reduce their liquidity and adversely affect the value retained by or received by our stockholders. Effectuating the formal separation of the biotechnology segment in a spinoff transaction may have adverse tax consequences for our stockholders and for us. We intend to evaluate the tax treatment of a spinoff- or split-off-type of a transaction; however, there can be no assurance that such a method of formalizing the separation of Alyea will qualify for tax-free treatment under applicable federal income tax law. If that methodology were to fail to qualify as a tax-free distribution, the Company and its stockholders could be subject to significant tax liabilities. Even if that method of formalizing the separation of Alyea qualifies that potential transaction as tax-free to our stockholders, we could be subject to corporate-level tax if certain events occur in connection with or following a spinoff. Any such tax liabilities could be substantial and could adversely affect our financial condition. Unlike currently, following a formal separation of our biotechnology segment, it will operate without our financial support and may face challenges in establishing itself as a fully independent company. Currently, our biotechnology segment has benefited from the Company’s financial resources, credit support, shared services, and operational infrastructure. After effectuating the formal separation, Alyea will be responsible for maintaining its own corporate functions, including finance, legal, human resources, information technology, and investor relations. The costs of establishing and operating these functions on a standalone basis may be higher than the historical allocated costs reflected in the biotechnology’s segment’s financial statements, as consolidated into ours. There is no assurance that Alyea will be able to replicate the services and functions previously provided by us at comparable cost or quality, and any failure to do so could adversely affect its financial condition, operating results, and ability to execute its business plan. Risks Relating to Ownership of Our Common Stock The market price of our common stock has been, and may continue to be volatile and fluctuate significantly, which could result in substantial losses for investors and subject us to securities class action litigation. The trading price for our common stock has been, and we expect it to continue to be, volatile. The price at which our common stock trades depends upon a number of factors, including our historical and anticipated operating results, our financial situation, announcements of technological innovations or new products by us, our ability or inability to raise additional capital we may need and the terms on which we raise it, and general market and economic conditions. Some of these factors are beyond our control. Broad market fluctuations may lower the market price of our common stock and affect the volume of trading in our stock, regardless of our financial condition, results of operations, business, or prospects. In addition, the stock markets, in general, The Nasdaq Capital Market, and the markets for biopharmaceutical and crypto companies in particular, may experience a loss of investor confidence. Such loss of investor confidence may result in extreme price and volume fluctuations in our common stock that are unrelated or disproportionate to the operating performance of our business, financial condition, or results of operations. These broad market and industry factors may materially harm the market price of our common stock and expose us to securities class action litigation. 20 Table of Contents Sales or distribution of substantial amounts of our Common Stock, or the perception that such sales or distributions might occur, could cause the market price of our Common Stock to decline. The sale or distribution of a substantial number of shares of our Common Stock, particularly sales by us or our directors, executive officers, and principal stockholders, or the perception that these sales or distributions might occur in large quantities, could cause the market price of our Common Stock to decline. We may also issue additional shares of Common Stock in the form of blockchain tokens to customers in connection with customer reward or loyalty programs. If we issue additional equity securities, stockholders will experience dilution, and the new equity securities could have rights senior to those of our currently authorized and issued Common Stock. If securities or industry analysts do not publish or cease publishing research, or publish inaccurate or unfavorable research, about our business, the price of our Common Stock and its liquidity could decline. The trading market for our Common Stock may be influenced by the research and reports that securities or industry analysts publish about us or our business, our market, and our competitors. We do not have any control over these analysts. If securities and industry analysts cease coverage of us altogether, the market price for our Common Stock may be negatively affected. If one or more of the analysts who cover us downgrade our Common Stock, or publish inaccurate or unfavorable research about our business, the price of our Common Stock may decline. In light of the unpredictability inherent in our business, our financial outlook commentary may differ from analyst’s expectations, which could cause volatility to the price of our Common Stock.