AI Financial Corp: Form 10-Q for the period ended Jun 27, 2026

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to provide a reader of our financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity and certain other factors that may affect our future results. Dollars stated in thousands, except per–share amounts.

Forward-Looking and Cautionary Statements

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the federal securities laws, including Section 27A of the Securities Act of 1933, as amended, and Section 21E of Exchange Act, which involve risks and uncertainties. You can identify forward-looking statements because they contain words such as ‘‘believes,’’ ‘‘expects,’’ ‘‘may,’’ ‘‘will,’’ ‘‘should,’’ ‘‘seeks,’’ ‘‘approximately,’’ ‘‘intends,’’ ‘‘plans,’’ ‘‘estimates’’ or ‘‘anticipates’’ or similar expressions that concern our strategy, plans or intentions. Any statements we make relating to our future operations, performance and results, and anticipated liquidity are forward-looking statements. All forward-looking statements are subject to risks and uncertainties that may change at any time, and, therefore, our actual results may differ materially from those we expected. We derive most of our forward-looking statements from our operating budgets and forecasts, which are based upon many detailed assumptions. While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and, of course, it is impossible for us to anticipate all factors that could affect our actual results. Important factors that could cause actual results to differ materially from our expectations, including, without limitation, in conjunction with the forward-looking statements included in this Quarterly Report on Form 10-Q, are disclosed in “Item 1-Business, Item 1A – Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 27, 2025, and Part II, Item 1A of this Report.

We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law. Our MD&A should be read in conjunction with our Form 10-K (including the information presented therein under the caption Risk Factors), together with our Quarterly Reports on Forms 10-Q and other publicly available information. All amounts herein are unaudited.

Our Company

Through our Fintech segment, we provide next generation blockchain-powered technologies to enable a migration to a new global financial paradigm, and, through our Biotechnology segment, we are focused on finding treatments for conditions that cause chronic pain and bringing to market drugs with non-addictive and non-sedative pain-relieving properties.

During the periods disclosed in this Quarterly Report, we operated three reportable segments:

Fintech

Our Fintech segment provides next generation blockchain-powered technologies for tokenization, trading, clearing, settlement, payment, and safe-keeping of digital assets

Biotechnology

Our Biotechnology segment is focused on finding treatments for conditions that cause severe pain and bringing to market drugs with non-addictive pain-relieving properties. We have previously announced our intention to capitalize a subsidiary with certain of our biotechnology assets, acquire an additional biotechnology asset, and then engage in a financing of that subsidiary. The short-term intended result of that series of transactions would be for to decouple it from us so that it would operate on a stand-alone basis. The Biotech segment is being presented as discontinued operations for the 13 and 26 weeks ended June 27, 2026 and June 28, 2025.

Corporate and Other

In August 2025, we closed a $1.5 billion registered direct offering and concurrent private placement to launch our WLFI Treasury Strategy. This “capital with a purpose” financing positioned the Company as one of the most significant institutional holders of WLFI, securing a meaningful stake in the native governance token of the World Liberty Financial ecosystem.

Our policy remains a committed long-term “HODL” approach, with future acquisitions funded through operating cash flows, structured debt, and selective capital raises. Sales are restricted to liquidity requirements or material portfolio rebalancing events.

Our Corporate and Other segment consists of WLFI assets, including any additions, redemptions, or mark-to-market changes in value, are recorded within the Company’s Corporate and Other segment.

Our Corporate and Other segment consists of certain corporate general and administrative costs.

For the Thirteen Weeks Ended June 27, 2026 and June 28, 2025

Results of Operations

The following table sets forth certain statement of operations items and as a percentage of revenue, for the periods indicated (in $000’s):

The following tables set forth revenues for key product and service categories, percentages of total revenue and gross profits earned by key product and service categories and gross profit percent as compared to revenues for each key product category indicated (in $000’s):

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Revenue

Revenue decreased by approximately $4.0 million for the 13 weeks ended June 27, 2026, as compared to the 13 weeks ended June 28, 2025. The decrease is due to the loss of a large customer.

Gross Profit

Gross profit decreased by approximately $0.4 million for the 13 weeks ended June 27, 2026, as compared to the 13 weeks ended June 28, 2025. The decrease is primarily due to the loss of a large customer.

Selling, General and Administrative Expense

Selling, general and administrative expenses decreased by approximately $1.8 million for the 13 weeks ended June 27, 2026, as compared to the 13 weeks ended June 28, 2025, primarily due to lower labor costs and the higher costs due to the acquisition of Mswipe in 2025.

Unrealized Loss on Cryptocurrency Assets

Unrealized loss on cryptocurrency assets for the 13 weeks ended June 27, 2026 was approximately $285.1 million. An unrealized gain or loss on cryptocurrency assets was recorded to mark the fair value of the WLFI tokens.

Segment Performance

We report our business in the following segments: Fintech, Biotechnology and Corporate and Other. During fiscal 2025, the Company announced its intent to formally separate its Biotechnology segment, also known as Alyea. Consequently, the Biotech segment is being presented as discontinued operations for the 13 weeks ended June 27, 2026 and June 28, 2025.

Operating loss by operating segment, is defined as loss before net interest expense, other income and expense, provision for income taxes ($000’s).

Fintech Segment

Our Fintech segment consists of ALT5 Subsidiary, which was acquired during May 2024, as well as Mswipe, which was acquired during May 2025. Revenue for the 13 weeks ended June 28, 2026 was approximately $2.4 million, and gross margin percentage was 97.6%. Operating income for the fiscal year ended 13 weeks ended June 27, 2026 was approximately $2.6 million.

Corporate and Other Segment

Our Corporate and Other segment generated no revenue for the for the 13 weeks ended June 27, 2026 and the 13 weeks ended June 28, 2025. Selling, general and administrative expenses increased primarily due to increased labor costs.

Biotechnology Segment

During fiscal 2025, the Company announced its intent to formally separate its Biotechnology segment, also known as Alyea. Consequently, the Biotech segment is being presented as discontinued operations for the 13 weeks ended June 27, 2026 and June 28, 2025. Our Biotech segment generated no revenue for the 13 weeks ended June 27, 2026 and the 13 weeks ended June 28, 2025. Selling, general and administrative expenses increased $0.5 million due to increased research and development expenses.

For the Twenty-six Weeks Ended June 27, 2026 and June 28, 2025

Results of Operations

The following table sets forth certain statement of operations items and as a percentage of revenue, for the periods indicated (in $000’s):

The following tables set forth revenues for key product and service categories, percentages of total revenue and gross profits earned by key product and service categories and gross profit percent as compared to revenues for each key product category indicated (in $000’s):

Revenue

Revenue decreased by approximately $4.8 million for the 26 weeks ended June 27, 2026, as compared to the 26 weeks ended June 28, 2025. The decrease is due to the loss of a major customer.

Gross Profit

Gross profit increased by approximately $0.6 million for the 26 weeks ended June 27, 2026, as compared to the 26 weeks ended June 28, 2025. The increase is due to the loss of a large low margin customer.

Selling, General and Administrative Expense

Selling, general and administrative expenses increased by approximately $0.3 million for the 26 weeks ended June 27, 2026, as compared to the 26 weeks ended June 28, 2025, the decrease is due an increase in professional fees in 2026 and due to higher costs due to the acquisition of Mswipe in 2025.

Interest Expense, net

Interest expense, net decreased by approximately $0.2 million for the 26 weeks ended June 27, 2026, as compared to the 26 weeks ended June 28, 2025 primarily due to pay down of debt.

Unrealized Loss on Cryptocurrency Assets

Unrealized loss on cryptocurrency assets for the 26 weeks ended June 27, 2026 was approximately $633.5 million. An unrealized gain or loss on cryptocurrency assets was recorded to mark the fair value of the WLFI tokens.

Segment Performance

We report our business in the following segments: Fintech, Biotechnology and Corporate and Other. During fiscal 2025, the Company announced its intent to formally separate its Biotechnology segment, also known as Alyea. As a result, the Biotech segment is being presented as discontinued operations for the 26 weeks ended June 27, 2026 and June 28, 2025.

Operating loss by operating segment, is defined as loss before net interest expense, other income and expense, provision for income taxes ($000’s).

Fintech Segment

Our Fintech segment consists of ALT5 Subsidiary, which was acquired during May 2024, as well as Mswipe, which was acquired during May 2025. Revenue for the 26 weeks ended June 27, 2026 was approximately $7.1 million, and gross margin percentage was 83.2%. Operating income for the fiscal year ended 26 weeks ended June 28, 2025 was approximately $1.0 million.

Corporate and Other Segment

Our Corporate and Other segment generated no revenue for the for the 26 weeks ended June 27, 2026 and the 26 weeks ended June 28, 2025. Selling, general and administrative expenses increased primarily due to increased costs for labor, accounting and public company expenses.

Biotechnology Segment

During fiscal 2025, the Company announced its intent to formally separate its Biotechnology segment, also known as Alyea. As a result, the Biotech segment is being presented as discontinued operations for the 26 weeks ended June 27, 2026 and June 28, 2025. Our Biotech segment generated no revenue for the for the 26 weeks ended June 27, 2026 and the 26 weeks ended June 28, 2025. Selling, general and administrative expenses were primarily due to research and development expenses.

Liquidity and Capital Resources

Overview

As of June 27, 2026, our cash on hand net of reserve, was $3.1 million. Approximately $3.5 million of cash has been fully reserved in connection with the legal matter, further described in Note 15 to the consolidated financial statements. We intend to raise funds either through capital raises or structured arrangements, which would include effectuating our previously announced intention to capitalize a subsidiary with certain of our biotechnology assets, acquire an additional biotechnology asset, and then engage in a financing of that subsidiary. The short-term intended result of that series of transactions would be for us to own a controlling interest in that subsidiary, but to decouple it from us so that it would operate on a stand-alone basis, although its financial statements would continue to be consolidated with ours for as long as we have a controlling interest.

Cash Flows

During the 26 weeks ended June 27, 2026, cash used in continuing operations was approximately $18.5 million, compared to cash used in continuing operations of approximately $6.7 million during the 26 weeks ended June 28, 2025. The decrease in cash was primarily due an unrealized loss on crypto currency assets offset by a change in deferred tax liability.

Cash used in investing activities for continued operations was $0.5 million for the 26 weeks ended June 27, 2026, compared to cash provided by investing activities of $0.1 million for the 26 weeks ended June 28, 2025. Cash provided by investing activities for the 26 weeks ended June 28, 2025 was related to the purchase of treasury shares offset by the acquisition of Mswipe, in 2025. There was no cash used in investing activities for discontinued operations during the 26 weeks ended June 27, 2026 or June 28, 2025.

Cash provided by financing activities was $10.7 million for the 26 weeks ended June 27, 2026, and relates to proceeds from notes payable, partially offset by purchases of short-term certificates of deposits and cash paid for notes payable. Cash provided by financing activities was approximately $3.7 million for the 26 weeks ended June 28, 2025, and relates to proceeds received from the issuance of notes payable, as well as warrants converted to our common stock, partially offset by cash paid for notes payable and related party notes payable. There was no cash provided by financing activities for discontinued operations during the 26 weeks ended June 27, 2026 or June 28, 2025.

Future Sources of Cash; Phase 2b Trials, New Acquisitions, Products, and Services

We may require additional debt financing and/or capital to finance new acquisitions, conduct our Phase IIb clinical trials for our Biotechnology segment, or consummate other strategic investments in our business. No assurance can be given any financing obtained may not further dilute or otherwise impair the ownership interest of our existing stockholders.

Market Risk and Impact of Inflation

Interest Rate Risk. We do not believe there is any significant risk related to interest rate fluctuations on our short and long-term fixed rate debt.

We do not hold any derivative financial instruments, nor do we hold any securities for trading or speculative purposes.

Evaluation of Disclosure Controls and Procedures

Evaluation of Disclosure control and Procedures. We carried out an evaluation, under the supervision, and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)). Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of June 27, 2026, the period covered in this report, our disclosure controls and procedures were not effective to ensure that information required to be disclosed in reports filed under the Exchange is recorded, processed, summarized and reported within the required time periods and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure due to material weaknesses in internal control over financial reporting further described below.

Despite the identified material weaknesses, management concluded that the consolidated financial statements included in this Quarterly Report on Form 10-Q present fairly, in all material respects, the financial position, results of operations and cash flows for the periods disclosed in conformity with GAAP. LJ Soldinger Associates, LLC, the Company’s independent registered public accounting firm, issued an unqualified opinion on our consolidated financial statements as of and for the year ended December 27, 2025. They were not engaged to perform, and did not perform, an audit of internal control over financial reporting. This material weakness has no impact on our consolidated financial statements in prior years.

Management’s Report on Internal Control Over Financial Reporting. Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)). Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

The Company’s management, including our CEO and CFO, do not expect that the Company’s disclosure controls and procedures or the Company’s internal control over financial reporting will prevent or detect all errors and all fraud. A control system, regardless of how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system will be met. These inherent limitations include the following: judgments in decision-making can be faulty, and control and process breakdowns can occur because of simple errors or mistakes, controls can be circumvented by individuals, acting alone or in collusion with each other, or by management override. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.

Our management assessed the effectiveness of our internal control over financial reporting as of June 27, 2026. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) of 2013 regarding Internal Control – Integrated Framework. Based on our assessment using those criteria, our management concluded that our internal control over financial reporting were not effective as of June 27, 2026. Management noted the following deficiencies that management believes to be material weaknesses:

• The Company does not have a properly documented internal control system in accordance with the requirements of the Committee on Sponsoring Organizations (“COSO”) or some similarly appropriate internal control methodology or formal documentation of the Company’s systems of internal control. This control deficiency contributed to errors that necessitated a restatement of the Company’s 2024 consolidated financial statements and represents a material weakness in internal control over financial reporting.
• The Company did not properly apply ASC 820 in valuing certain equity instruments issued as consideration in a business combination. The Company recorded and adjustment to correct the error.

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In response to the above identified weaknesses in our internal control over financial reporting, we plan to improve the documentation of our internal control policies and procedures and develop an internal testing plan to document our evaluation of effectiveness of the internal controls. We expect to conclude these remediation initiatives during the fiscal year ended December 26, 2026. We continue to evaluate testing of our internal control policies and procedures, including assessing internal and external resources that may be available to complete these tasks, but do not know when these tasks will be completed.

A material weakness (within the meaning of PCAOB Auditing Standard No. 5) is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of the company’s financial reporting.

• The Company improperly recorded an adjustment that duplicated certain fees and overstated revenue. The Company recorded an adjustment to correct the error.
• The Company used an incorrect grant-date fair value in measuring certain equity awards. The amount of the misstatement was not material.
• The Company did not appropriately record certain qualifying equity issuance costs as a reduction of equity and instead recognized them in the income statement. The amount of the resulting misstatement was not material.

This Quarterly Report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the SEC that permit us to provide only management’s report in this Quarterly Report.

Changes in Internal Control Over Financial Reporting. There were no changes in the Company’s internal control over financial reporting identified in management’s evaluation pursuant to Rule 13a-15and 15d-15 of the Exchange Act that occurred during the fiscal year ended June 27, 2026 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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.