FDCTECH, INC. 10-Q

ITEM 4. CONTROLS AND PROCEDURES. Evaluation of Disclosure Controls and Procedures Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer (together, the “Certifying Officers”), we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on the foregoing, our Certifying Officers concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this Report, as further described below in connection with the restatement of our previously issued financial statements. In light of the material weaknesses described below, management performed additional procedures to ensure that the unaudited condensed consolidated financial statements included in this Report have been prepared in accordance with U.S. generally accepted accounting principles. Accordingly, management has concluded that, notwithstanding the material weaknesses identified, the unaudited condensed consolidated financial statements included in this Report present fairly, in all material respects, the Company’s financial position, results of operations, and cash flows for the periods presented. Material Weaknesses in Internal Control over Financial Reporting In connection with the preparation of this Report and the restatement described in Note 2 (Summary of Significant Accounting Policies — Restatement of Previously Issued Financial Statements) to the unaudited condensed consolidated financial statements, the Company identified the following material weaknesses in its internal control over financial reporting: (i) Consolidation and Intercompany Elimination — the Company did not have effective controls to ensure that intercompany cash positions and one-sided intercompany residual balances were identified and eliminated or appropriately classified in consolidation, resulting in the overstatement of cash and cash equivalents and the misclassification of related party receivable and related party advance balances; (ii) Noncontrolling Interest Attribution — the Company did not have effective controls to ensure that net income (loss) attributable to the noncontrolling interest was attributed and presented on the face of the consolidated statements of operations in accordance with ASC 810-10; (iii) Account Classification and Footing Review — the Company did not have effective controls to ensure that the components of other income (expense) were presented with the correct sign and footed to the reported total; and (iv) Lease Accounting Updates — the Company did not have effective controls to ensure that modifications to the parent company operating lease were timely reflected in rent expense, the right-of-use asset, and the related operating lease liabilities in accordance with ASC 842. Remediation Plan Management, under the oversight of the Board of Directors, has begun implementing the following remediation measures: (a) implementation of a standardized intercompany reconciliation and elimination checklist, including specific procedures to identify one-sided intercompany balances, performed as part of each quarterly close; (b) use of standardized templates and review procedures for the attribution of net income (loss) and other comprehensive income (loss) to the noncontrolling interest; (c) enhanced footing, cross-referencing, and sign-convention review procedures over the statement of operations and supporting schedules; and (d) a quarterly review of lease agreements and lease modifications to ensure timely recognition under ASC 842. These measures supplement the remediation actions previously described in the Company’s Annual Report on Form 10-K/A for the fiscal year ended December 31, 2025. Management believes the steps outlined above, when fully implemented and operating effectively, will remediate the material weaknesses described herein; however, the material weaknesses cannot be considered remediated until the applicable controls have operated for a sufficient period and management has concluded, through testing, that the controls are designed and operating effectively. 15 Disclosure controls and procedures are controls and other procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and communicated to management, including our Certifying Officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Management’s Report on Internal Controls over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) under the Securities Exchange Act, as amended. Management, with the participation of the Chief Executive Officer and the Chief Financial Officer, evaluated the effectiveness of the Company’s internal control over financial reporting as of June 30, 2026. In making this assessment, management utilized the criteria established by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in its 2013 Framework for Internal Control. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of our consolidated financial statements for external reporting purposes in accordance with Generally Accepted Accounting Principles (GAAP). Our internal control over financial reporting includes those policies and procedures that: (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of our company, (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors, and (3) provide reasonable assurance regarding the prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the consolidated financial statements. Due to its inherent limitations, internal control over financial reporting may not be effective in preventing or detecting errors or misstatements in our consolidated financial statements. Additionally, projections of any evaluation of effectiveness in future periods are subject to the risk that controls may become inadequate due to changes in conditions or that the degree of compliance with policies or procedures may deteriorate. Management assessed the effectiveness of our internal control over financial reporting as of June 30, 2026. Based on our assessments, management determined that we did not maintain effective internal control over financial reporting as of June 30, 2026, due to the material weakness in our internal controls, including inadequate segregation of duties within account processes due to limited personnel and insufficient written policies and procedures for accounting, IT, and financial reporting and record keeping. Management intends to implement remediation steps to enhance our internal controls, addressing inadequate segregation of duties within account processes, limited personnel resources, and insufficient written policies and procedures for accounting, IT, financial reporting, and record-keeping. We plan to further improve this process by enhancing the size and composition of our board upon the closing of the business, identifying third-party professionals with whom to consult regarding complex accounting applications, and considering additional staff with the requisite experience and training to supplement existing accounting professionals, and implementing additional layers of reviews in the internal controls and financial reporting process. This Report does not include an attestation report from our independent registered public accounting firm on the effectiveness of our internal control over financial reporting, as the Company is a non-accelerated filer and is therefore not subject to the auditor attestation requirement of Section 404(b) of the Sarbanes-Oxley Act of 2002. Changes in Internal Control over Financial Reporting During the three and six months ended June 30, 2026, in connection with the remediation efforts described above, the Company implemented changes in its internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting. These changes were directed principally at the Company’s operating subsidiaries and consisted of: (i) the designation of finance personnel at each of Alchemy Markets Ltd. (“AML”), Alchemy Prime Limited (“APL”) and Alchemy International Ltd. (“AIL”) with defined responsibility for the completeness and accuracy of the reporting package submitted to the parent for consolidation; (ii) implementation of a standardized monthly intercompany reconciliation and confirmation process under which each subsidiary agrees its intercompany and related party balances to the corresponding counterparty balance and identifies one-sided or unmatched items for resolution before the consolidation is prepared; (iii) introduction of a standardized subsidiary reporting template incorporating footing, cross-referencing and sign-convention checks over the statement of operations and supporting schedules; (iv) establishment of a preparer-and-reviewer approval hierarchy requiring sign-off at the subsidiary level and a second-level review at the parent level prior to submission for consolidation; and (v) enhanced segregation of duties over the recording and approval of intercompany transfers, related party advances and client money movements at the regulated subsidiaries. Management believes these changes strengthen the checks and balances applied at the subsidiary level; however, as described above, the material weaknesses will not be considered remediated until the applicable controls have operated for a sufficient period and management has concluded, through testing, that they are designed and operating effectively. 16 PART II.