{"url_path":"/sec/fdct/10-k/2026/item-7","section_key":"item-7","section_title":"Item 7 **","topic":"sec","document":{"doc_type":"10-K/A","doc_date":"2026-06-08","source_url":"https://www.sec.gov/Archives/edgar/data/1722731/0001493152-26-027724-index.html","accession_number":"0001493152-26-027724","cik":"0001722731","ticker":"FDCT","issuer_name":"FDCTECH, INC.","edgar_url":"https://www.sec.gov/Archives/edgar/data/1722731/0001493152-26-027724-index.html","primary_entity_key":"0001722731","primary_entity_name":"FDCTECH, INC."},"word_count":4674,"has_tables":true,"body_markdown":"**ITEM\n7.**\n**MANAGEMENT’S\nDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**\n\n \n\n**This\nAnnual Report Form 10-K contains forward-looking statements. Our actual results could differ materially from those set forth due to general\neconomic conditions and changes in the assumptions used in making such forward-looking statements. The following discussion and analysis\nof our financial condition and results of operations should be read together with the audited financial statements and accompanying notes\nand the other financial information appearing elsewhere in this report. The analysis set forth below is provided pursuant to applicable\nSecurities and Exchange Commission regulations and is not intended to serve as a basis for projections of future events.**\n\n \n\n**Overview**\n\n \n\nFDCTech,\nInc. is a financial technology company that provides institutional liquidity, multi-asset trading solutions, wealth management services,\nand proprietary trading technology to clients globally. We operate through four business segments: Margin Brokerage, Wealth Management,\nTechnology and Software Development, and Payment Intermediary Services. Our regulated subsidiaries hold licenses from the Malta Financial\nServices Authority (MFSA), the UK Financial Conduct Authority (FCA), the Australian Securities and Investments Commission (ASIC), and\nthe Seychelles Financial Services Authority (FSA), among others.\n\n \n\nFiscal year 2025 represented a year\nof substantial financial progress for the Company. Total revenues increased 29.8% to $34,959,399, driven by strong growth in\nTechnology & Software revenues and continued expansion of our Investment and Brokerage segment, including the contribution of\nAlchemy International Ltd. (“AIL”), acquired in fiscal 2025. We achieved an operating income of $6,067,574 compared to\nan operating loss of ($635,439) in fiscal 2024 (restated), reflecting improved operational leverage across all three\nrevenue-generating segments. Net income (loss) attributable to FDCTech shareholders was $5,797,589 in fiscal 2025, compared to a net\nincome of $247,544 in fiscal 2024 (restated). At December 31, 2025, the Company held total cash and cash equivalents of $17,669,749,\ncomprising $11,855,861 of unrestricted cash at financial institutions and $5,813,888 of segregated client funds. At December 31,\n2024, the comparable balances were $25,376,957 in total, consisting of $13,850,168 of unrestricted cash and $11,526,789 of\nsegregated client funds. Of the year-end totals, $15,258,896 and $12,658,241 were held at various liquidity providers in 2025 and\n2024, respectively. The working capital improved to $17,831,410 from $991,609 as of December 31, 2025, and 2024.\n\n** **\n\n**Restatement\nof Fiscal Year 2024 Financial Statements**\n\n \n\nOn\nApril 3, 2025, the Company’s Board of Directors dismissed Olayinka Oyebola & Co. (“Olayinka”) as its independent\nregistered public accounting firm, following Olayinka’s designation as a Prohibited Service Provider by OTC Markets Group. The\nCompany engaged LAO Professionals (PCAOB Firm ID: 7057) as its new independent auditor effective April 3, 2025.\n\n \n\nAs\npart of the auditor transition, the fiscal year 2024 financial statements previously audited by Olayinka were reaudited by LAO Professionals.\nThe reaudit resulted in certain reclassifications and adjustments to the previously reported December 31, 2024, consolidated balance\nsheet and related statements. All comparisons presented in this Item 7 between fiscal year 2025 and fiscal year 2024 are based on the\nLAO-reaudited 2024 figures. Investors should not rely upon the financial statements as presented in the Company’s previously filed\nAnnual Report on Form 10-K for the year ended December 31, 2024 (filed March 3, 2025). See Note 4 — Restatement of Previously Issued\nFinancial Statements for further detail.\n\n \n\n22 \n\n \n\n** **\n\n**Results\nof Operations**\n\n \n\nThe\nfollowing table presents a summary of our consolidated results of operations for the fiscal years ended December 31, 2025, and December\n31, 2024 (restated), together with the dollar and percentage change between periods.\n\n \n\n \n \n\n**Year Ended**\n\n**Dec 31, 2025**\n\n**(Restated,**\n\n**Audited)**\n\n \n \n\n**Year Ended**\n\n**Dec 31, 2024**\n\n**(Restated, Audited)**\n\n \n \n**Change ($)**\n \n \n**Change (%)**\n \n\n**REVENUES**\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\nTechnology & software\n \n$\n5,099,187\n \n \n$\n1,642,130\n \n \n$\n3,457,057\n \n \n$\n210.52\n%\n\nWealth management\n \n \n6,430,897\n \n \n \n6,498,404\n \n \n \n(67,507\n)\n \n \n-1.04\n%\n\nBrokerage\n \n \n23,429,315\n \n \n \n18,803,184\n \n \n \n4,626,131\n \n \n \n24.60\n%\n\n**Total revenues**\n \n**$**\n**34,959,399**\n \n \n**$**\n**26,943,718**\n \n \n**$**\n**8,015,681**\n \n \n**$**\n**29.75**\n**%**\n\n**COST OF SALES**\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\nTechnology & software\n \n$\n-\n \n \n$\n173,708\n \n \n$\n(173,708\n)\n \n$\n—\n \n\nWealth management\n \n \n5,755,675\n \n \n \n5,925,652\n \n \n \n(169,977\n)\n \n \n-2.87\n%\n\nBrokerage\n \n \n10,059,683\n \n \n \n8,802,990\n \n \n \n1,256,693\n \n \n \n14.28\n%\n\n**Total cost of sales**\n \n \n**15,815,358**\n \n \n \n**14,902,350**\n \n \n \n**913,008**\n \n \n \n**6.13**\n**%**\n\n**Gross profit**\n \n \n**19,144,041**\n \n \n \n**12,041,368**\n \n \n \n**7,102,673**\n \n \n \n**58.99**\n**%**\n\nGross margin %\n \n \n54.76\n%\n \n \n44.70\n%\n \n \n10.10\n%\n \n \n—\n \n\n**OPERATING EXPENSES**\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\nGeneral and administrative\n \n$\n11,561,028\n \n \n$\n11,023,841\n \n \n$\n537,187\n \n \n$\n4.87\n%\n\nSales and marketing\n \n \n1,336,685\n \n \n \n1,466,616\n \n \n \n(129,931\n)\n \n \n-8.86\n%\n\nDepreciation\n \n \n178,754\n \n \n \n186,350\n \n \n \n(7,596\n)\n \n \n-4.08\n%\n\n**Total operating expenses**\n \n**$**\n**13,076,467**\n \n \n**$**\n**12,676,807**\n \n \n**$**\n**399,660**\n \n \n**$**\n**3.15**\n**%**\n\n**Operating income (loss)**\n \n**$**\n**6,067,574**\n \n \n**$**\n**(635,439**\n**)**\n \n**$**\n**6,703,013**\n \n \n**$**\n**—**\n \n\nOperating margin %\n \n \n17.36\n%\n \n \n-2.36\n%\n \n \n—\n \n \n \n—\n \n\n**OTHER INCOME (EXPENSE)**\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\nOther interest income (expense)\n \n$\n(106,089\n)\n \n$\n(638,483\n)\n \n$\n532,394\n \n \n$\n—\n \n\nOther income (expense)\n \n \n(132,507\n)\n \n \n1,510,508\n \n \n \n(1,643,015\n)\n \n \n—\n \n\n**Total other income (expense)**\n \n**$**\n**(238,596**\n**)**\n \n**$**\n**872,025**\n \n \n**$**\n**(1,110,621**\n**)**\n \n$\n—\n \n\n**Income (loss) before income taxes**\n \n**$**\n**5,828,978**\n \n \n**$**\n**236,586**\n \n \n**$**\n**5,592,392**\n \n \n$\n—\n \n\nProvision for income taxes\n \n \n-\n \n \n \n-\n \n \n \n-\n \n \n \n—\n \n\n**Net income (loss)**\n \n**$**\n**5,828,978**\n \n \n**$**\n**236,586**\n \n \n**$**\n**5,592,392**\n \n \n$\n2,363.79\n%\n\n**Net income (loss) attributable to FDCTech shareholders**\n \n**$**\n**5,797,589**\n \n \n**$**\n**247,544**\n \n \n**$**\n**5,550,045**\n \n \n$\n2,242.04\n%\n\nEPS — basic and diluted\n \n \n0.01\n \n \n \n0.00\n \n \n \n—\n \n \n \n—\n \n\nWeighted avg shares outstanding\n \n \n423,084,729\n \n \n \n390,377,880\n \n \n \n—\n \n \n \n—\n \n\n \n\n23 \n\n \n\n** **\n\n**Revenues**\n\n \n\nTotal revenues for the fiscal year\nended December 31, 2025, were $34,959,399, an increase of $8,015,681, or 29.8%, compared to $26,943,718 for the fiscal year ended\nDecember 31, 2024 (restated). Revenue growth was driven primarily by the Investment and Brokerage and Technology & Software\nsegments and continued expansion of investment and brokerage trading volumes, partially offset by a slight decline in Wealth\nManagement revenues.\n\n** **\n\n**Technology\n& Software**\n\n \n\nTechnology\n& software revenues for fiscal year 2025 were $5,099,187, an increase of $3,457,057, or 210.5%, compared to $1,642,130 in fiscal\nyear 2024. This segment encompasses licensing and subscription revenues from our proprietary Condor Trading Technology suite, including\nthe Condor Pro Multi-Asset Trading Platform and Condor Risk Management back-office system, as well as consulting and custom development\nservices delivered through Alchemytech Ltd. (ATECH) in Cyprus.\n\n \n\nThe increase reflects expanded adoption\nof the Condor platform by third-party brokerages and new licensing contracts executed during fiscal year 2025. During fiscal years 2025\nand 2024, the Company had approximately fourteen to seventeen active technology and software development customers. Cost of sales for\nthis segment was $nil in fiscal year 2025 (2024: $173,708), as development costs in 2025 were capitalized as software development costs.\nTechnology & Software revenues represented 14.6% of total revenues in fiscal year 2025 compared to 6.1% in fiscal year 2024.\n\n \n\n**Wealth\nManagement**\n\n \n\nWealth\nmanagement revenues for fiscal year 2025 were $6,430,897, a decrease of $67,507, or 1.0%, compared to $6,498,404 in fiscal year 2024.\nThis segment is operated by AD Advisory Services Pty Ltd. (“ADS”), our 51%-owned Australian subsidiary regulated by ASIC,\nwhich provides licensing solutions and financial planning services to a network of approximately 28 financial advisers with more than\n$530 million in funds under advice.\n\n \n\nThe\nslight revenue decline reflects normal variability in adviser activity levels and does not indicate a structural deterioration of the\nsegment. Cost of sales in this segment — principally payments to advisers, compliance costs, and platform fees — decreased\nto $5,755,675 from $5,925,652, contributing to a segment gross margin improvement to 10.5% from 8.8% in fiscal year 2024. Wealth management\nrepresented 18.4% of total revenues in fiscal year 2025 compared to 24.1% in fiscal year 2024, reflecting the relative growth of the\nInvestment and Brokerage and Technology segments.\n\n** **\n\n**Brokerage**\n\n \n\nBrokerage\nrevenues for fiscal year 2025 were $23,429,315, an increase of $4,626,131, or 24.6%, compared to $18,803,184 in fiscal year 2024. This\nsegment encompasses trading commissions, spreads, and related revenues from our regulated brokerage entities: Alchemy Markets Ltd. (Malta,\nMFSA-regulated), Alchemy Prime Limited (United Kingdom, FCA-regulated), and Alchemy International Ltd. (Seychelles, FSA-regulated). The\nlatter was acquired in fiscal year 2025, contributing incremental brokerage revenues not present in the prior year.\n\n \n\nBrokerage revenues represented 67.0%\nof total revenues in fiscal year 2025 compared to 69.8% in fiscal year 2024. The segment gross margin decreased slightly to 42.9% from\n46.8%, reflecting an increase in trading costs. Cost of sales in this segment principally consists of liquidity provider fees, introducing\nbroker commissions, and direct trading infrastructure costs.\n\n \n\n24 \n\n \n\n** **\n\n**Gross\nProfit**\n\n \n\nGross\nprofit for fiscal year 2025 was $19,144,041, an increase of $7,102,673, or 59.0%, from $12,041,368 in fiscal year 2024. Consolidated\ngross margin expanded to 54.8% in fiscal year 2025 from 44.7% in fiscal year 2024, an improvement of approximately 1,010 basis\npoints. The margin expansion was driven by (i) elimination of technology cost of sales in fiscal year 2025 as development costs were\nfully capitalized, (ii) improved scale in the Investment and Brokerage segment as revenues grew faster than variable costs, and\n(iii) modest efficiency gains in the Wealth Management segment.\n\n** **\n\n**Operating\nExpenses**\n\n \n\nTotal operating expenses for fiscal year 2025 were $13,076,467, an increase\nof $399,660, or 3.2%, compared to $12,676,807 in fiscal year 2024. Despite revenue growth of approximately 30%, total operating expenses\ngrew only 3.2%, demonstrating meaningful operating leverage. As a percentage of total revenues, operating expenses declined to 37.4% in\nfiscal year 2025 from 47.0% in fiscal year 2024.\n\n** **\n\n**General and Administrative Expenses.** General and administrative expenses (“G&A”) for fiscal year\n2025 were $11,561,028, an increase of $537,187, or 4.9%, compared to $11,023,841 in fiscal year 2024 (restated). G&A as a percentage\nof revenues declined to 33.1% from 40.9%, reflecting the benefit of operating leverage on a largely fixed cost base. G&A principally\nincludes employee compensation, professional fees (legal, accounting, and audit), regulatory compliance costs across our multiple licensed\nsubsidiaries, office rent and occupancy, and other corporate overhead. The modest absolute increase reflects incremental compliance and\noperational costs associated with the addition of Alchemy International Ltd. and related regulatory obligations.\n\n** **\n\n**Sales\nand Marketing Expenses.**Sales and marketing expenses for fiscal year 2025 were $1,336,685, a decrease of $129,931, or 8.9%, compared\nto $1,466,616 in fiscal year 2024. As a percentage of revenues, sales and marketing costs declined to 3.8% from 5.4%. These expenses\nprimarily consist of trade show participation, client entertainment, online marketing, public relations, and related activities across\nour brokerage and technology businesses.\n\n** **\n\n**Depreciation.** Depreciation expense\nfor fiscal year 2025 was $178,754, a decrease of $7,596, or 4.1%, compared to $186,350 in fiscal year 2024, primarily reflecting the\naging of the fixed asset base, partially offset by additions during the year.\n\n \n\n**Operating\nIncome (Loss)**\n\n \n\nOperating income for fiscal year 2025 was $6,067,574, compared to an operating\nloss of ($635,439) in fiscal year 2024 (restated). The turnaround of $6,703,013 reflects the combination of significant revenue growth,\ngross margin expansion, and strong operating leverage on the expense base. The operating margin improved to 17.4% in fiscal year 2025\nfrom a negative of 3.1% in fiscal year 2024.\n\n** **\n\n**Other\nIncome (Expense)**\n\n \n\nTotal other expense for fiscal year 2025 was $238,596, compared to other\nincome of $872,025 in fiscal year 2024. The change of ($1,110,621) is primarily attributable to two items:\n\n** **\n\n**Other interest income (expense).**Net interest expense was $(106,089) in fiscal year 2025, compared to net\ninterest expense of $638,483 in fiscal year 2024. The improvement reflects significantly reduced reliance on interest-bearing debt and\nimproved cash management during fiscal year 2025.\n\n** **\n\n**Other income (expense).**Other expense\nwas ($132,507) in fiscal year 2025, compared to other income of $1,510,508\nin fiscal year 2024. Fiscal year 2024 included a significant one-time other income item that did not recur in fiscal year 2025. The fiscal\nyear 2025 amount reflects net foreign exchange transaction losses and other miscellaneous items arising from the Company’s multi-currency\noperations.\n\n \n\n**Provision\nfor Income Taxes**\n\n \n\nThe provision for income taxes was $nil for both\nfiscal years 2025 and 2024. The Company’s U.S. parent entity has historically generated operating losses and maintains a full valuation\nallowance against its domestic deferred tax assets. The Company’s foreign subsidiaries are subject to income taxes in their respective\njurisdictions; however, taxable income has been offset by available deductions or existing tax attributes. See Note 15 to the consolidated\nfinancial statements for further discussion of income taxes.\n\n** **\n\n**Net income (loss) attributable to FDCTech\nShareholders**\n\n \n\nNet income (loss) attributable to FDCTech shareholders for fiscal year 2025\nwas $5,797,589, or $0.01 per basic and diluted share based on weighted average shares outstanding of 423,084,729, compared to net income\nof $247,544, or $0.00 per share, in fiscal year 2024 (restated). The improvement reflects the factors described above: strong revenue\ngrowth, gross margin expansion, operating leverage, and the absence of significant non-recurring expenses in fiscal year 2025.\n\n \n\nThe noncontrolling interest in fiscal year 2025 represents the 49% minority\ninterest held by third parties in AD Advisory Services Pty Ltd and 0.1% minority interest held by Gope Kundnani in Alchemy International\nLimited. Net income (loss) attributable to noncontrolling interest was $31,389 in fiscal year 2025 (2024: net loss attributable to NCI\nof $10,958). The noncontrolling interest in fiscal year 2024 represents the 49% minority interest held by third parties in AD Advisory\nServices Pty Ltd.\n\n \n\n25 \n\n \n\n \n\n**Liquidity\nand Capital Resources**\n\n \n\nOur primary sources of liquidity are cash generated from operations,\nproceeds from financing activities, including related party advances and equity issuances, and cash held at our regulated brokerage subsidiaries.\nAt December 31, 2025, we held total cash and cash equivalents of $17,669,749, consisting of $11,855,861 of unrestricted cash and $5,813,888\nof segregated client funds, of which $15,258,896 in aggregate was held at liquidity providers. We have a positive working capital of $17,831,410,\nand total stockholders’ equity of $22,657,965 attributable to FDCTech, Inc. stockholders (plus $33,323 noncontrolling interest).\nWe believe our current liquidity position is sufficient to fund our operating and capital requirements for at least twelve months from\nthe date of this Annual Report.\n\n \n\nWhile the Company achieved profitability in fiscal\nyear 2025, we note that operating cash flows were negative $41.0 million due to a substantial increase in related party receivables of\napproximately $38,407,601, which represents intercompany funding arrangements expected to be settled during fiscal year 2026. Excluding\nthis item, adjusted operating cash generation reflects the improved profitability of the business. Management continues to monitor working\ncapital carefully, given the scale of related party balances.\n\n \n\n**Cash\nFlows**\n\n** **\n\nThe\nfollowing table summarizes our cash flows for the fiscal years ended December 31, 2025, and December 31, 2024 (restated):\n\n \n\n  \n\n**Year Ended**\n\n**Dec 31, 2025**\n\n**(Restated, Audited)**\n  \n\n**Year Ended**\n\n**Dec 31, 2024**\n\n**(Restated, Audited)**\n \n\nNet cash provided (used) in operating activities \n$(40,918,408) \n (13,632,376)\n\nNet cash provided (used) by investing activities \n 11,670,570  \n 742,741 \n\nNet cash provided (used) by financing activities \n 21,171,592  \n 7,248,140 \n\nEffect of exchange rate \n 369,038  \n (298,009)\n\nNet increase (decrease) in cash \n$(7,707,208) \n (5,939,504)\n\nCash, cash equivalents, and restricted cash at beginning of the period \n 25,376,957  \n 31,316,461 \n\nCash, cash equivalents, and restricted cash at end of the period \n$17,669,749  \n 25,376,957 \n\n \n\n****\n\n**Operating\nActivities**\n\n \n\nNet cash used in operating activities was ($40,918,408) in fiscal year\n2025, versus net cash used of $13,632,376 in fiscal year 2024. Despite net income (including noncontrolling interest) of $5,828,978, operating\ncash flow was driven negative by a $38,407,601 increase in related party receivables — advances to affiliated entities under the\nCompany’s intercompany funding structure — which is expected to be substantially settled in fiscal year 2026.\n\n \n\nOther notable working capital movements in fiscal\nyear 2025 included a $3,195,117 decrease in other current liabilities, partially offset by a $1,793,304 recovery of accrued income. Depreciation\nof $178,754 was the principal non-cash item. No cash was paid for interest or income taxes in either year.\n\n \n\nThe prior-year $13,632,376 operating cash outflow primarily reflected\na $18,693,481 decrease in client funds payables (liabilities).\n\n** **\n\n**Investing\nActivities**\n\n \n\nNet cash provided by investing activities was $11,670,570 in fiscal\nyear 2025, compared to $742,741 in fiscal year 2024. Fiscal year 2025 activity primarily reflected $8,933,118 recognized on the consolidation\nof Alchemy International Limited and $1,054,389 of paid-in-capital changes attributable to common-control transactions, together with\na $2,000,000 credit on the business acquisition seller’s note, partially offset by $316,937 of capitalized software development\ncosts.\n\n \n\nFiscal year 2024 activity was driven by $818,507 of paid-in-capital\nchanges attributable to common-control transactions, partially offset by $75,766 of capitalized software development costs.\n\n** **\n\n**Financing\nActivities**\n\n \n\nNet cash provided by financing activities was $21,171,592 in fiscal\nyear 2025, compared to $7,248,140 in fiscal year 2024. The fiscal year 2025 amount primarily comprised related party advances of $21,204,630,\npartially offset by a net change in noncontrolling interest of ($31,389) and repayments on the line of credit ($3,985), the PPP advance\n($5,661), and the SBA loan ($8,506).\n\n \n\nFiscal year 2024 financing activity consisted\nprimarily of related party advances of $7,199,501, net borrowings on the line of credit of $54,595, and common stock issued for cash\nof $20,000, partially offset by noncontrolling interest distributions of ($22,118), PPP repayments of ($14,991), and SBA loan repayments\nof ($8,505).\n\n \n\n26 \n\n \n\n \n\n**Sources\nof Liquidity**\n\n** **\n\n**Cash and Cash Equivalents (including client\nfunds).**At December 31, 2025, we held total cash and cash equivalents of $17,669,749, consisting of $11,855,861 of\nunrestricted cash and $5,813,888 of segregated client funds, of which $15,258,896 in aggregate was held at liquidity\nproviders. The unrestricted cash balance is held in operating accounts of our subsidiaries across multiple jurisdictions. The segregated\nclient funds, maintained at our regulated brokerage entities, are subject to regulatory minimum requirements and are not freely available\nfor general corporate purposes.\n\n** **\n\n**Related Party Receivables and Advances.**At\nDecember 31, 2025, related party receivables totaled $40,090,051, representing amounts due from affiliated entities and related parties\nunder intercompany funding arrangements. These are expected to be settled in the ordinary course of business during fiscal year 2026.\nRelated party advances payable of $29,197,470 represent amounts received from related parties to support the Company’s operations,\nand these are expected to be repaid or converted during fiscal year 2026. The net related party position (receivable less payable) was\napproximately $10,892,581 as of December 31, 2025.\n\n** **\n\n**Client Funds.**Our regulated brokerage\nsubsidiaries hold client funds of $5,813,888 as of December 31, 2025 (2024: $11,526,789). These amounts are maintained in segregated\nclient accounts pursuant to applicable regulatory requirements and are not available for general corporate purposes. Client funds are\nrecognized as both an asset (segregated cash) and a corresponding liability in our consolidated balance sheet.\n\n** **\n\n**Lines of Credit and Debt.**At December\n31, 2025, our total outstanding debt obligations were approximately $2,567,030, consisting primarily of a business acquisition loan of\n$2,350,000, a line of credit balance of $111,352, and an SBA Economic Injury Disaster Loan of $105,678 (non-current). The SBA loan bears\ninterest at 3.75% per annum.\n\n** **\n\n**Regulatory\nCapital Requirements**\n\n \n\nOur\nregulated subsidiaries are subject to minimum capital requirements imposed by their respective regulatory authorities. Alchemy Markets\nLtd. (MFSA, Malta) and Alchemy Prime Limited (FCA, United Kingdom) are subject to European Union and UK capital adequacy requirements\napplicable to investment firms. Alchemy International Ltd. is subject to capital requirements under the laws of Seychelles. AD Advisory\nServices Pty Ltd. is subject to ASIC’s financial requirements for Australian financial services licensees. At December 31, 2025,\nmanagement believes that all regulated subsidiaries were in compliance with their respective minimum regulatory capital requirements.\nRegulatory capital requirements may limit the ability of subsidiaries to distribute cash upstream to the parent company.\n\n** **\n\n**Working\nCapital**\n\n \n\nAt December 31, 2025, working capital was\n$17,831,410, compared to working capital of $991,609 as of December 31, 2024 (restated). The improvement of approximately\n$16,839,801 reflects primarily the growth in the related party receivable (classified as current), which increased by approximately\n$38,407,601, comprising primarily AIL’s current account receivable from Alchemy Capital Markets Ltd. (ACM) and related\naffiliates, which is partially offset by an increase in related party advances payable (net) of approximately $21,204,630,\nprimarily owed to Alchemy DMCC, a Kundnani-affiliated entity. Excluding related party receivables and advances, the\nCompany’s underlying working capital remains modestly positive.\n\n** **\n\n**Contractual\nObligations and Commitments**\n\n \n\nOur\nprincipal contractual obligations as of December 31, 2025, consist of operating lease commitments, amounts outstanding under government-assistance\nloan programs, and the business acquisition loan. We have no material off-balance sheet arrangements.\n\n** **\n\n**Operating\nLeases.**We lease office space for our corporate headquarters in Irvine, California,\nand for our subsidiary offices in Malta, the United Kingdom, Australia, Cyprus, and Seychelles. At December 31, 2025, right-of-use assets\nwere $811,038, current operating lease liabilities were $165,692, and non-current operating lease liabilities were $364,655. The weighted-average\nremaining lease term for operating leases was approximately 1.1 years, and the weighted-average discount rate was approximately 5.5%.\n\n** **\n\n**SBA\nLoan.**We have an outstanding Economic Injury Disaster Loan from the U.S. Small Business Administration with a non-current balance\nof $105,678 as of December 31, 2025. The loan bears interest at 3.75% per annum with monthly principal and interest payments.\n\n** **\n\n**Business\nAcquisition Loan.**We have a business acquisition loan with a current balance of $2,350,000 as of December 31, 2025, an increase of\n$2,000,000 from the prior year’s balance of $350,000, reflecting additional amounts drawn to fund the acquisition of Alchemy International\nLtd. during fiscal year 2025.\n\n** **\n\n**Future\nCapital Requirements**\n\n \n\nOur\nfuture capital requirements will depend on a number of factors, including the growth rate of our revenue, our technology development\ninvestments, regulatory capital requirements at our subsidiaries, the timing and extent of any strategic acquisitions, and general economic\nand market conditions. We believe our existing cash, anticipated cash generation from operations, and available financing sources will\nbe adequate to fund our operations and planned capital expenditures for at least the next twelve months. If additional capital is required,\nwe may seek equity or debt financing; however, there can be no assurance that financing will be available on acceptable terms or at all.\nAny equity financing may result in dilution to existing stockholders.\n\n \n\nWe\nare also pursuing a potential listing of our common stock on a national securities exchange in connection with a proposed public offering\nof common stock (see Note 18 — Subsequent Events). Proceeds from such an offering, if completed, would significantly enhance our\nliquidity position and capital resources.\n\n** **\n\n**Off-Balance\nSheet Arrangements**\n\n \n\nAt December 31, 2025, we did not have any relationships with unconsolidated organizations, special purpose entities, or other arrangements\nthat would constitute off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K that have or are reasonably likely\nto have a material current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital\nexpenditures, or capital resources.\n\n \n\n27 \n\n \n\n \n\n**Critical\nAccounting Policies and Estimates**\n\n \n\nThe\npreparation of our consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions\nthat affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial\nstatements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from\nthose estimates. We consider the following policies to be critical because they involve the most significant judgments and estimates\nused in the preparation of our financial statements.\n\n** **\n\n**Revenue\nRecognition.**We recognize revenue in accordance with ASC 606, Revenue from Contracts with Customers. Revenue is recognized when,\nor as, control of promised goods or services is transferred to a customer in an amount that reflects the consideration we expect to receive.\nFor technology and software licensing, revenue is generally recognized over the contract term on a straight-line basis. For brokerage\ncommissions and spreads, revenue is recognized on a trade-date basis. For wealth management services, revenue is generally recognized\nas services are rendered. Management exercises judgment in determining the appropriate contract term, transaction price, and timing of\nrevenue recognition for arrangements with variable consideration or multiple performance obligations.\n\n** **\n\n**Capitalized\nSoftware Development Costs.**We capitalize internal and external costs incurred during the application development stage of internal-use\nsoftware in accordance with ASC 350-40, Intangibles — Goodwill and Other — Internal-Use Software. Preliminary project stage\nand post-implementation costs are expensed as incurred. Management exercises judgment in determining the appropriate stage of development\nat which capitalization begins and ceases. Capitalized costs are amortized on a straight-line basis over the estimated useful life of\nthe software, which we have generally estimated to be three to five years. Impairment of capitalized software is assessed whenever events\nor changes in circumstances indicate that the carrying amount may not be recoverable.\n\n** **\n\n**Foreign\nCurrency Translation.**The functional currency of each of our foreign subsidiaries is the respective local currency. Assets and liabilities\nof foreign subsidiaries are translated into U.S. dollars at exchange rates in effect at the balance sheet date, while revenues and expenses\nare translated at average exchange rates for the reporting period. Resulting translation adjustments are recorded as a component of accumulated\nother comprehensive income (loss) in stockholders’ equity and are not included in determining net income. Transaction gains and\nlosses arising from transactions denominated in currencies other than the functional currency are recognized in other income (expense)\nin our consolidated statements of operations.\n\n** **\n\n**Fair\nValue of Financial Instruments.**The Company’s brokerage subsidiaries carry trading positions at fair value, based on quoted\nmarket prices (Level 1) or observable inputs (Level 2 in the fair value hierarchy). At December 31, 2025, the net fair value of trading\npositions held by the firm was $1,183,873 (asset). Management exercises judgment in classifying assets and liabilities within the fair\nvalue hierarchy and in determining whether observable inputs are available for valuation purposes.\n\n** **\n\n**Goodwill\nand Intangible Assets.**Acquired intangible assets are recognized at fair value at the acquisition date and amortized over their estimated\nuseful lives. Management exercises judgment in identifying and measuring intangible assets at acquisition, estimating their useful lives,\nand assessing them for impairment. At December 31, 2025, acquired intangible assets, net, were $1,326,062. There were no impairment charges\nrecognized in fiscal year 2025.\n\n** **\n\n**Income\nTaxes.**We account for income taxes using the asset and liability method, which requires recognition of deferred tax assets and liabilities\nfor the expected future tax consequences of differences between the financial reporting and tax bases of assets and liabilities. We assess\nthe likelihood that deferred tax assets will be realized and establish valuation allowances when, in management’s judgment, it\nis more likely than not that some or all of a deferred tax asset will not be realized. Our U.S. operations carry a full valuation allowance.\nThe assessment of valuation allowances requires significant judgment regarding expected future taxable income, tax planning strategies,\nand the reversal of temporary differences.\n\n** **\n\n**Recently\nIssued Accounting Standards**\n\n \n\nThe\nCompany evaluates accounting standards issued by the Financial Accounting Standards Board (FASB) and the SEC on an ongoing basis. There\nwere no recently issued accounting standards that had or are expected to have a material impact on the Company’s consolidated financial\nstatements for fiscal year 2025. As an emerging growth company, the Company has elected to use the extended transition period provided\nby the JOBS Act for complying with new or revised financial accounting standards.\n\n** **\n\n**JOBS\nAct and Emerging Growth Company Status**\n\n \n\nWe\nare an “emerging growth company” as defined in Section 2(a) of the Securities Act of 1933, as modified by the Jumpstart Our\nBusiness Startups Act of 2012 (the “JOBS Act”). As an emerging growth company, we are permitted to, and do, rely on exemptions\nfrom certain disclosure requirements that are applicable to other public companies that are not emerging growth companies, including\nexemption from compliance with the auditor attestation requirement in the assessment of our internal control over financial reporting\npursuant to Section 404 of the Sarbanes-Oxley Act of 2002 and reduced disclosure obligations regarding executive compensation in our\nperiodic reports.\n\n \n\nUnder\nthe JOBS Act, emerging growth companies may delay adopting new or revised accounting standards until those standards apply to private\ncompanies. We have elected to avail ourselves of this extended transition period. As a result, our financial statements may not be comparable\nto those of companies that comply with such new or revised accounting standards on a non-delayed basis.\n\n \n\nWe\nwill remain an emerging growth company until the earliest of: (i) the last day of the fiscal year following the fifth anniversary of\nthe completion of our initial public offering; (ii) the last day of the fiscal year in which we have total annual gross revenue of at\nleast $1.235 billion; (iii) the date on which we have issued more than $1.0 billion in non-convertible debt during the preceding three-year\nperiod; and (iv) the last day of the fiscal year in which the market value of our common stock held by non-affiliates exceeded $700 million\nas of the prior June 30.\n\n \n\n28"}