ALPHA MODUS HOLDINGS, INC. 10-K

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. References in this section to “we,” “our,” “us,” and “Alpha Modus” generally refer to Alpha Modus, Corp. prior to the Business Combination and to Alpha Modus Holdings, Inc. and its consolidated subsidiaries after giving effect to the Business Combination. References to “Legacy Alpha Modus” generally refer to Alpha Modus, Corp., and references to the “Company” generally refer to Alpha Modus Holdings, Inc. The following discussion and analysis of our results of operations and financial condition should be read in conjunction with the sections entitled “Business,” “Unaudited Pro Forma Condensed Combined Financial Information and Other Data,” and our financial statements and related notes and other information included elsewhere in this report. This discussion contains forward-looking statements based upon our current expectations, estimates and projections that involve risks and uncertainties. Actual results could differ materially from those anticipated in these forward-looking statements due to, among other considerations, the matters discussed under “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements.” Overview Alpha Modus engages in creating, developing and licensing data-driven technologies to enhance consumers’ in-store digital experience at the point of decision. The company was founded in 2014 and is headquartered in Cornelius, North Carolina. As technological innovation is at the core of the company, Alpha Modus has developed comprehensive end-to-end patented solutions for retailers and consumer brands to bring innovation to consumers and enhance their experience at the point of sale. Some examples that the ‘571 patent family could potentially include use in the following: ● targeted marketing campaigns; ● actionable insights on consumer product packaging; ● inventory control; ● smart planograms; ● in-store heatmapping of consumer traffic; ● consumer behavior; and ● staffing needs based on foot traffic in a retail location. 43 The primary focus of Alpha Modus’ technology is to analyze consumer behavior and their interactions with retail products in real-time with the objective to provide brands and retailers the ability to achieve the following: Enhance the Consumer’s In-Store Experience ● Engage consumers with interactive output displays throughout brick-and-mortar retail stores to capture critical decision-making at the point of sale. ● Cater to specific and immediate needs of the consumer. ● Capture MAC address tracking data, user eye tracking, object identification of goods throughout the store. Manage Inventory and Create Smart Planograms ● Assess the consumers product engagement and product tracking in real time. ● Aid in inventory management and product placement throughout a store by creating smart planograms. Monetize Digital Insights ● Curate tailored in-store marketing solutions. ● Drive sales via engaging customers with digital experiences at the point of sale. Critical Accounting Policies and Estimates Critical accounting policies are those that, in management’s view, are most important to the portrayal of a company’s financial condition and results of operations and most demanding on their calls on judgment, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. While our significant accounting policies are described in more detail in Note 2 to our financial statements appearing elsewhere in this annual report, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our financial statements. Derivative Liabilities The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. The Company evaluates all of its financial instruments, including issued stock purchase warrants and the forward purchase agreement, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives, pursuant to ASC 480 and FASB ASC Topic 815, “Derivatives and Hedging” (“ASC 815”). The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period. The company earnout shares and sponsor earnout shares (“earnout shares”) as defined in the business combination agreement are recognized as derivative liabilities in accordance with ASC 815. In accordance with FASB ASC Topic 820, “Fair Value of Financial Instruments” (“ASC 820”), the Company recognizes the earnout shares instruments as liabilities at fair value and adjusts the carrying value of the instruments to fair value at each reporting period for so long as they are outstanding. At the date of the merger, the initial fair value of the earnout shares have been estimated using a Monte Carlo simulation model. Subsequently, the fair value of the earnout shares have been estimated using this same Monte Carlo simulation model. Derivative earnout shares liabilities are classified as current liabilities (See note 7 for more details on earnout shares). 44 Series C Preferred Stock During the year ended December 31, 2024, the Company amended and restated its charter to include the designation of a Series C Preferred Stock. The Amended and Restated Charter authorizes the issuance of 8,500,000 shares of preferred stock, 7,500,000 shares of which have been designated as Series C Redeemable Convertible Preferred Stock (“Series C Preferred Stock”), and 1,000,000 shares of which will be undesignated. Based on the characteristics and rights of the Series C Preferred Stock, the Company is reporting it as Mezzanine Equity (Temporary Equity) on its consolidated balance sheets. These shares were valued at the date of issuance using a Monte Carlo Simulation model. The Company determined that subsequent changes to the carrying value of the series C preferred shares will not be recognized until Redemption becomes probable of occurring. See Note 9 – Mezzanine Equity for further details. Off-balance Sheet Arrangements We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. Results of Operations For the year ended December 31, 2025, compared to the year ended December 31, 2024 Revenue Alpha Modus had $7,138 and $0 in royalty revenue during the years ended December 31, 2025 and 2024, respectively. Operating Expenses Alpha Modus had operating expenses of $5,251,326 for the year ended December 31, 2025, compared to $834,895 for the year ended December 31, 2024. The increase was primarily due to an increase in professional fees and increased consulting, insurance, payroll and public company expenses. Other Income/Expenses Alpha Modus had total other expense of $2,777,047 for the year ended December 31, 2025, $3,981,641 of which was interest expense, $803,680 of which was a gain in change in fair value of warrants liability, $1,053,084 of which was a gain of change in fair value of earnout shares liability and $760,302 of which was loss on settlement of debt, as compared to total other income of $4,938,162, $168,886 of which was interest expense, $13,226,926 of which was a forbearance fee expense, $397,553 of which was a loss in change in fair value of warrants liability and $18,731,514 of which was a gain of change in fair value of earnout shares liability during the year ended December 31, 2024. Net Income Alpha Modus had a net loss of $8,021,235 for the year ended December 31, 2025, compared to a net income of $4,103,067 for the year ended December 31, 2024. The net loss during the year ended December 31, 2025 was primarily due to increase in operating expenses and the increase in interest expenses together with the gain in change in fair value of earnout shares of $1,053,084, gain in change in fair value of warrants liability of $803,680 and loss on settlement of debt of $760,302 as compared to the net income during the year ended December 31, 2024 comprised of the gain in change in fair value of earnout shares of $18,731,514, loss in change in fair value of warrants liability of $397,553 and forbearance fee expense of $13,226,926 as described above. Liquidity and Capital Resources As of December 31, 2025, Alpha Modus had cash of $68,000. We do not have sufficient resources to effectuate our business. We expect to incur significant expenses during the next twelve months of operations, including as a result of becoming a public company. We estimate that these expenses will be comprised primarily of general expenses including overhead, legal and accounting fees. To maintain our plan of growth, we believe we will need to raise a minimum of an additional $2,500,000. These factors, along with the lack of current Company revenues, raise substantial doubts about Alpha Modus’ ability to continue as a going concern. 45 Operations used cash of $3,210,182 for the year ended December 31, 2025, compared to $1,676,499 used for the year ended December 31, 2024. We used $8,050 to acquire equipment in the year ended December 31, 2025 compared to $2,537 in cash acquired with the business combination but incurred $361,643 in acquisition costs in the year ended December 31, 2024. We had net cash provided by financing activities for the year ended December 31, 2025, of $2,550,418, compared to $2,664,610 for the year ended December 31, 2024. We will have to raise funds to pay for our expenses. We may have to borrow money from shareholders or issue debt or equity or enter into a strategic arrangement with a third party. There can be no assurance that additional capital will be available to us. We currently have no arrangements or understandings with any person to obtain funds through bank loans, lines of credit or any other sources. Since we have no such arrangements or plans currently in effect, our inability to raise funds for our operations will have a severe negative impact on our ability to remain a viable company. Emerging Growth Company Status Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can choose not to take advantage of the extended transition period and comply with the requirements that apply to non-emerging growth companies, and any such election to not take advantage of the extended transition period is irrevocable. IAC is an “emerging growth company” as defined in Section 2(a) of the Securities Act and has elected to take advantage of the benefits of the extended transition period for new or revised financial accounting standards. Following the consummation of the Business Combination, Alpha Modus expects to remain an emerging growth company at least through the end of the 2023 fiscal year and to continue to take advantage of the benefits of the extended transition period, although it may decide to early adopt such new or revised accounting standards to the extent permitted by such standards. This may make it difficult or impossible to compare Alpha Modus’ financial results with the financial results of another public company that is either not an emerging growth company or is an emerging growth company that has chosen not to take advantage of the extended transition period exemptions because of the potential differences in accounting standards used. Subject to certain conditions set forth in the JOBS Act, if, as an emerging growth company, we intend to rely on such exemptions, we are not required to, among other things: (i) provide an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act; (ii) provide all of the compensation disclosure that may be required of non-emerging growth public companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act; (iii) comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis); and (iv) disclose certain executive compensation-related items such as the correlation between executive compensation and performance and comparisons of the Chief Executive Officer’s compensation to median employee compensation. We will remain an emerging growth company under the JOBS Act until the earliest of (i) the last day of our first fiscal year following the fifth anniversary of the IAC IPO, (ii) the last date of our fiscal year in which we have total annual gross revenue of at least $1.07 billion, (iii) the date on we are deemed to be a “large accelerated filer” under the rules of the SEC with at least $700.0 million of outstanding common equity held by non-affiliates, or (iv) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the previous three years. Item 7a. Quantitative and Qualitative Disclosures about Market Risk. We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item. 46