EDGAR 10-K Filing

Company CIK: 862861
Filing Year: 2025
Filename: 862861_10-K_2025_0001628280-25-015469.json

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ITEM 1. BUSINESS
ITEM 1. BUSINESS
General
ALT5 Sigma Corporation, (formerly known as JanOne Inc.) and subsidiaries (collectively, “we,” “us,” the “Company,” or “ALT5”). Through our Fintech segment, the Company provides 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.
On May 15, 2024, the Company acquired ALT5 Sigma, Inc., and on July 15, 2024, changed its corporate name from JanOne Inc. to ALT5 Sigma Corporation. ALT5 Sigma, Inc., is a financial services and Fintech holding company. ALT5 Sigma, Inc. was created by financial industry specialists out of the necessity to provide the digital asset economy with the best practices of the industry and state of the art over-the-counter trading.
Through March 8, 2023, the Company operated its discontinued legacy businesses through its Recycling Subsidiaries, consisting of: (a) ARCA Recycling, Inc., a California corporation (“ARCA Recycling”), (b) ARCA Canada Inc., a corporation organized under the laws of Ontario, Canada (“ARCA Canada”), and (c) Customer Connexx, LLC, a Nevada limited liability company (“Connexx”). ARCA Recycling and ARCA Canada recycle major household appliances in North America by providing turnkey appliance recycling and replacement services for utilities and other sponsors of energy efficiency programs. Connexx is a company that provides call center services for recycling businesses. On March 9, 2023, we entered into a Stock Purchase Agreement (the “Recycling Purchase Agreement”) with VM7 Corporation, a Delaware corporation (“VM7”), under which it agreed to acquire all of the outstanding equity interests of the Recycling Subsidiaries. The principal of VM7 is Virland A. Johnson, our Chief Financial Officer.
The information contained in or accessible from our website is not incorporated into this Annual Report on Form 10-K (the “Form 10-K”), and it should not be considered part of this Form 10-K. We have included our website address in this Form 10-K solely as an inactive textual reference.
The Company’s legal address is located at 325 E Warm Springs Rd #102, Las Vegas, NV 89119, with subsidiary offices in Newmarket, and Montreal, Canada.
Fintech
Overview
ALT5 Sigma, Inc., through its subsidiaries, offers two main platforms to its customers: “ALT5 Pay” and “ALT5 Prime.” ALT5 Pay is a crypto-currency payment gateway that enables registered and approved global merchants to accept and make crypto-currency payments or to integrate the ALT5 Pay payment platform into their application or operations using the plugin with WooCommerce and or ALT5 Pay’s checkout widgets and APIs. Merchants have the option to convert to fiat currency (US Dollars, Canadian Dollars, Euros, and British Pounds Sterling) automatically or to receive their payment in digital assets. ALT5 Prime is an electronic over-the-counter trading platform that enables registered and approved customers to buy and sell digital assets. Customers can purchase digital assets with fiat and, equally, can sell digital assets and receive fiat. ALT5 Prime is available through a browser-based access, mobile phone application named “ALT5 Pro” that can be downloaded from the Apple App Store, from Google Play, through ALT5 Prime’s FIX API, as well as through Broadridge Financial Solutions’ NYFIX gateway for approved customers.
ALT5 Sigma, Inc., has two wholly owned subsidiaries, ALT5 Sigma Canada, Inc., and ALT5 Securities, Inc. ALT5 Sigma Canada, Inc. has four wholly owned subsidiaries, ALT5 AI, Inc. (Canada), ALT5 Pro, LLC. (Saint-Vincent and the Grenadines), UAB ALT5 Sigma Prudentia (Lithuania), and ALT5 Sigma Prudentia s.r.o. (Czech Republic) formerly Cypherlynx s.r.o.
ALT5 Sigma develops, commercializes products and services based on four key fundamental principles of 1) Safety, Security and Trust, 2) Accessibility 3) Regulations, 4) Transparency:
Safety, Security and Trust
Develop and deploy products and services that increase our clients and customers' trust in our organization.
Accessibility
Develop and deploy products and services that are easy to use, accessible everywhere and with no barriers.
Regulations
Deploy and deploy the best practices in the industry to comply with KYC, KYT, AML reporting and always be at the forefront of all regulatory requirements.
Transparency
Develop and deploy the best practices in financial reporting, as well as best practices in communication of all material events for all stakeholders i.e. customers, shareholders, suppliers and employees.
Background
Corporate History and Organizational Structure
ALT5 Sigma, Inc. was formed and incorporated in the State of Delaware on March 5, 2018 under the name Buttonwood ARCA Inc. On March 28, 2018, the Company filed a Certificate of Amendment with the State of Delaware changing our name to ALT5 Sigma. The Company entered into a Share Exchange and Reorganization Agreement on March 21, 2018 with Société AVA Inc., a Canadian corporation, and as a result Société AVA Inc. became a wholly owned subsidiary of the Company. On March 28, 2018 the Company changed the name of Société AVA Inc. to ALT5 Sigma Canada Inc.
On August 14, 2019, ALT5 Sigma Canada Inc., acquired 100% of Miningcrypt Inc., a Canadian crypto currency mining company, and on November 25, 2019, Miningcrypt Inc., changed its name to ALT5 AI Inc. On October 31, 2020, due to a severe storm, the mining equipment suffered fatal damages and the mining operations ceased. ALT5 AI Inc. is intended to be used to hold intellectual properties and develop machine learning and or artificial intelligence software. ALT5 AI Inc., does not currently have any assets and is not currently operating.
On February 21, 2020, ALT5 Sigma Canada Inc., formed a wholly owned limited liability company named ALT5 Pro LLC in the country of Saint-Vincent and the Grenadines.
On February 10, 2023, ALT5 Sigma Canada Inc., formed a wholly owned corporation in the country of Lithuania named UAB ALT5 Sigma Prudentia and have applied for a cryptocurrency exchange license with the Central Bank of Lithuania. The application was filed and is pending approval.
On March 16, 2023, ALT5 Sigma, Inc., formed a wholly owned corporation in the State of New York, by the name of ALT5 Securities Inc.
On June 28, 2023, ALT5 Sigma Canada Inc., acquired all of the shares of a company in the Czech Republic by the name of Cypherlynx s.r.o. Cypherlynx s.r.o. has limited operating history and is licensed in the Czech Republic to operate a cryptocurrency exchange. The company has filed a name change to ALT5 Sigma Prudentia s.r.o. and the name change is pending.
On May 10, 2024, ALT5 Sigma, Inc. was acquired by JanOne Inc.
Organizational Structure Chart
Executive Summary
ALT5 Sigma, Inc., is a financial services and Fintech holding company. ALT5 Sigma, Inc. was created by financial industry specialists out of the necessity to provide the digital asset economy with the best practices of the industry and state of the art over-the-counter trading of securities. ALT5 Sigma, Inc., operates two distinct wholly owned subsidiaries, ALT5 Sigma Canada Inc., and ALT5 Securities Inc.
ALT5 Sigma Canada Inc., provides next generation blockchain-powered technologies for tokenization, trading, clearing, settlement, payment and custodianship of digital assets through its wholly owned subsidiaries. ALT5 Sigma Canada has four wholly owned subsidiaries, ALT5 AI Inc., ALT5 Pro LLC, UAB ALT5 Sigma Prudentia and ALT5 Prudentia s.r.o.
ALT5 Sigma Canada group of companies’ products and services are target at business two business (B2B) only and not a retail clientele. The global target market for ALT5 Sigma Canada group of companies are banks, broker dealers, funds, family offices, proprietary trading firms, liquidity providers, financial information providers, and merchants.
Business Model/ Revenue Model
The Company obtains its revenue from initial installation fees or setup fees, monthly maintenance fees, spreads and transaction commissions fees.
Our Clients
Our products and services are marketed to banks, broker dealers, funds, family offices, proprietary trading firms, liquidity providers, financial information providers, payment processing partners and merchants.
The Company has a total of approximately 1,900 corporate clients’ customers located in 50 countries.
Product Overview
ALT5 Prime
ALT5 Prime is an electronic over-the-counter trading platform, enabling registered and approved customers to buy and sell digital assets. Customers can purchase digital assets with US dollars, Canadian dollars, Euros, and British Pounds and customers may sell digital assets and receive US dollars, Canadian dollars, Euros and British Pounds. ALT5 Prime is available through a browser-based access, mobile phone application named ALT5 Pro that can be downloaded from the Apple store and Google Play store, or through the company’s FIX API as well as through Broadridge’s NYFIX gateway to approved customers.
Depending on their geographic location, registered and approved Customers may buy and sell a number of digital assets including, but not limited to:
Symbol Name Symbol Name Symbol Name
AAVE Aave DASH Dash SNX Synthetix
APE Apecoin DOGE Dogecoin SOL Solana
ADA Cardano DOT Polkadot SUSHI Sushiswap
ALGO Algorand ETH Ethereum TRUMP Official Trump
ATOM Cosmos FTM Fantom / Sonic TRX Tron
AU AutoCrypto HKD HongKongDao UNI Uniswap
AVAX Avalanche LINK Chainlink USDC USD Coin
BCH Bitcoin-Cash LTC Litecoin USDT Tether USD
BNB BNB MANA Decentraland UST TerraClassicUSD
BSV Bitcoin SV MATIC Polygon XLM Stellar
BTC Bitcoin MKR Maker XRP Ripple
BTCN BitcoinNote MXN Moneta Digital XTZ Tezos
COMP Compound QNT Quant YFI Yearn.finance
DAI Dai SHIB Shiba-inu
ALT5 Prime screen sample:
ALT5 Pay
ALT5 Pay is a crypto currency payment gateway enabling registered and approved global merchants to accept and make crypto currency payments or integrate the payment platform into their application or operations using the plug in with WooCommerce and or the company’s checkout widgets and APIs. Merchants have the option to automatically convert to US dollars, Canadian Dollars, Euros and/or British Pound or hold the digital assets.
ALT5 Pay screen sample:
Technology
▪Ability to offer multiple digital assets
▪Support 24/7
▪Complete backend control through customizable administration dashboard.
▪Audit trades for clients
▪Automated trade confirmation email and customized Monthly statements
▪Ability to place edit and cancel limit orders into order book via API
▪Unlimited Accounts per user
▪Accept fiat deposits (USD, CAD, EUR and GBP).
▪Supported order types including market, limit and stop
▪Endpoints supporting connections to trading interfaces, API, and related user-directed systems
▪Integrated system to document customer KYC for onboarding process
▪Connect to FIX, Binary, WebSocket, REST and custom APIs.
▪Run reports, transactions, treasury
▪Unlimited user profile
Security
▪Global setting protections in force to prevent unauthorized account activity, including unusual withdrawal requests.
▪All platform data is replicated and backed up in real-time.
▪Built in protection against brute force denial of service (DoS) and distributed denial of service (DDoS) attacks and active whitelist/blacklist management control.
▪Internal Service interaction utilize separate authentication contexts and are not exposed to the Internet
▪All website data is transmitted via encrypted transport layer security (TLS) connections (i.e. HTTPS)
▪Cold Storage Wallet Management
▪Encrypted User Information
▪Two Factor authentication
Trading Features
▪Multiple available views, including price chart, depth chart, order book and recent trades ticker.
▪Live order book displays buy and sell orders with live spread calculation.
▪Six chart styles including line, bar, area and candles.
▪Ability to set custom chart durations ranging from one minute to years
▪Ability to customize color and styles of bars, borders, wicks, price lines, backgrounds and grid
▪Multiple scale styles including auto, percentage and logarithmic
▪Ability to report block trade Integrated ability to save current chart view to jpeg
▪58 available indicators including linear
▪Regression curves, moving averages and oscillators
▪Ability to draw custom trendlines, pitchforks, and more that scales and move with chart.
▪11 available trendlines styles including rays, angles and arrows
▪18 available pitchforks styles including pitchforks, Gann boxes, and Fibonacci’s
▪9 available brushes including ellipses, triangles and rectangles
▪12 available test box styles including flag marks, arrows and price labels
▪14 available pattern descriptors including cypher, ABCD and Elliott formations
▪9 available forecasting markers including bars, ghosts, spreads and areas
▪300+ available icons to markup charts.
▪Custom area measurement tool to find duration percentage change and price change Automatic calculation of fees included in order price
▪Multiple custom user reports including trade activity, transaction activity, and treasury activity
Competition
The digital assets market for our ALT5 Prime and ALT5 Pay products and services is a relatively new industry and only a hand full of companies have emerged as recognized brands providing exchange or trading platforms such as Coinbase, Kraken, and Binance. These platforms target the retail digital asset investors but currently account for the largest trading volume in dollar equivalent and number of coins traded.
We believe that some of the leading financial institutions license or buy the technology and services necessary to be able to be effectively and quickly provide these services to their customers and prevent the attrition of assets under management due to the movement of same to digital assets investments and whereby the ALT5 products are services are highly advantageous for these customers as they provide a best-of-breed solutions.
Market Size
The Company’s products and services are designed for banks, broker dealers, funds, family offices, proprietary trading firms, liquidity providers, financial information providers, and merchants.
Our main target market and focus are FINRA-registered broker dealers and global merchants.
According to the most recent information from FINRA, there are 3,712 broker-dealers registered and under FINRA’s supervision, representing 629,112 registered representatives.
As of December 2024, the U.S. equity markets remain the largest globally, with a market capitalization of approximately $63 trillion, accounting for over 50% of the global equity market's value (Morningstar). This reflects significant growth from previous years, with the U.S. market adding nearly $11 trillion in value in 2024 alone. In comparison, the global digital assets market experienced substantial growth in 2024, with its market capitalization nearly doubling to approximately $3.91 trillion by mid-December, before consolidating at $3.40 trillion (Crowdfund Insider). Bitcoin continues to lead the digital assets market, maintaining a significant share of the total market capitalization.
The Company projects that 3% of assets currently allocated to U.S. equities will transition to digital assets over the next 36 to 60 months. Based on the current U.S. equity market capitalization of $63 trillion, this 3% shift represents approximately $1.89 trillion. Such a reallocation could increase the global digital assets market capitalization to approximately $5.29 trillion. Given that average trading volumes of digital assets have been around 19% of the total market capitalization, this would correspond to daily trading volumes of approximately $1.0 trillion globally and $380 billion in the U.S.
The Company further believes that retail and institutional investors will continue to seek advice, trade execution, and safekeeping of their assets, including digital assets such as Bitcoin, through their FINRA-registered broker-dealers. Therefore, we anticipate that our main target market, FINRA broker-dealers, will aggregate 90% of the daily trading volume, representing $342 billion of daily trading volume or $124.8 trillion in annual trading volume and potential revenues of $8.64 billion.
According to a McKinsey report, the global payments industry revenue reached $2.1 trillion in 2021. If calculated at an annualized growth rate of 9%, global payments industry revenue is projected to reach $3.3 trillion in 2026. Specifically, the crypto payment gateway market size is expected to reach $4.12 billion by 2029, growing at a CAGR of 16.8% from $1.19 billion in 2022, according to Maximize Market Research Private Limited.
Looking ahead, the Boston Consulting Group (BCG) projects that global payments revenues will continue to grow, albeit at a moderated pace. BCG's Global Payments Report 2023 forecasts an annual growth rate of 6.2%, with revenues expected to reach $2.2 trillion by 2027 (BCG Global). This adjustment reflects a combination of market dynamics and macroeconomic factors influencing the industry.
In the realm of cryptocurrency payments, the market is experiencing significant growth. Future Market Insights projects that the crypto payment gateways market will expand from $1.29 billion in 2023 to approximately $4.85 billion by 2033, representing a compound annual growth rate (CAGR) of 14.1% (Future Market Insights).
This growth is driven by increasing adoption of cryptocurrencies and advancements in payment technologies.
Sales and Marketing
ALT5 Sigma has outsourced a portion of its sales and business development to resellers. It is the company’s strategy to target its primary market through conferences, tradeshows, direct mailing and other digital advertising. The company intends on concentrating its marketing efforts in the United States and Canada as well as establish partnerships in other markets such as Europe, and Asia.
Revenue Model
ALT5 Sigma generates revenue through three main line items.
1.Installation or a onetime setup fee, which may vary depending on size and depth of installation.
2.Monthly maintenance, which may also vary depending on the size and depth of installation.
3.Transaction fees, which range from 0.25% to 5% on all transactions, buy and or sell or payment processing depending on industry and volume.
Historical Transaction Volume, Revenue, Profit
ALT5 Sigma, Inc., transaction volume reached a cumulative of $4.5 billion since inception and more specifically was $39.0 million in 2020, $442.0 million in 2021, $743.0 million in 2022 and has $1.1 billion in 2023 and $2.2 billion in 2024 with corresponding consolidated revenue of $12.5 million and profit of $0.7 million in revenue and $4.3 million in net loss for 2020, $3.5 million in revenue and $12.3 million in net loss for 2021, $9.1 million and $0.5 million in net profit for 2022 and $11.9 million in revenue and $3.4 million in profit for 2023.
Biotechnology
Overview
We are also a clinical-stage biopharmaceutical company focused on becoming the leader in identifying, acquiring, licensing, developing, partnering, and commercializing novel, non-opioid, and non-addictive therapies to address the large, unmet medical need for the treatment of pain and addiction. JAN101 (formerly known as TV1001SR) is a potential treatment for PAD, a vascular disease that affects more than 8.5 million people in the U.S. and more than 60 million people
worldwide. We expected to commence Phase IIb/III clinical trials for the treatment of PAD in 2025. We are also working with a novel formulation of LDN that we call JAN 123, which includes a biphasic release of the product. The release properties of JAN123 provide for an immediate release of a portion of the product with a slow, sustained release of the remaining product. Importantly, the rapid release of LDN has been reported to lead to vivid and lucid unpleasant dreams, which should be eliminated with the formulation of JAN123. Initially, we expect that a single tablet of JAN123 will be administered orally, once a day before sleep, with eventual titration up to two tablets before sleep.
In the fourth quarter of our 2024 fiscal year, our board of directors determined that we would form a new subsidiary and capitalize it with JAN123 and certain of our other biopharma assets. Accordingly, we incorporated a Nevada corporation known as Alyea Therapeutics Corporation (“Alyea”) and expect to build upon and complete the capitalization of Alyea during the first half of our current fiscal year. In that context, our financial statements for the 2023 and 2024 fiscal years will show some, if not all, of our biopharmacy segment as a discontinued operation.
Pain
Pain is a protective reaction that alerts the body to the presence of actual or potential tissue damage so that necessary corrective responses can be mounted. The National Institutes of Health (the “NIH”) defines chronic pain as pain that persists beyond the normal healing time of an injury or that persists longer than three months. It is estimated that chronic pain affects 100 million individuals in the United States and over 1.5 billion people worldwide; thus, more people suffer from chronic pain than diabetes, heart disease, and cancer combined (Cowen Therapeutic Categories Outlook, March 2019). Chronic pain exacts a tremendous cost in terms of direct treatment and rehabilitation expenditures, lost worker productivity, prevalent addiction to opioid-based drugs, and emotional and financial burden for patients and their families. According to an Institute of Medicine of the National Academies report, pain is a significant public health problem in the United States that costs society between $560 billion and $635 billion annually. Despite the magnitude of the pain problem, innovation in the development of therapeutic solutions has been largely absent. Since 2010, there have been 20 approvals by the FDA for the treatment of pain, of which 12 were opioid variants, one was an extended-release generic corticosteroid, five were variants of aspirin, and two were variants of other existing drugs. We are developing a novel product candidate designed to overcome the limitations of current treatment options for patients with PAD who suffer from chronic pain. According to a research study by Stanford University, more than 24% of patients with PAD are at risk of high opioid use. By treating pain at the source and presenting patients and physicians with better and safer treatment alternatives, we expect to minimize opioids at the prescription pad. Given the properties of JAN101, we have made the strategic decision to focus initially on pain associated with PAD by treating the underlying cause of PAD.
Chronic Pain
The NIH defines chronic pain as pain that persists either beyond the normal healing time of an injury or longer than three months. We believe that chronic pain represents a significant public health crisis. It is estimated that chronic pain affects 100 million individuals in the United States and over 1.5 billion people worldwide; thus, more people suffer from chronic pain than diabetes, heart disease, and cancer combined (Cowen Therapeutic Categories Outlook, March 2019). Chronic pain exacts a tremendous cost in terms of direct treatment and rehabilitation expenditures, lost worker productivity, prevalent addiction to opioid-based drugs, and emotional and financial burden for patients and their families. According to an Institute of Medicine of the National Academies report, pain is a significant public health problem in the United States that costs society between $560 billion and $635 billion annually. Chronic pain is the leading cause of long-term disability in the United States, and approximately 23 million adults in the United States experience severe pain over a three-month period. Globally, the prevalence of chronic pain is even larger, with over one billion people worldwide affected each year. Common types of chronic pain include those of neuropathic and inflammatory origin and may involve the skin, muscles, joints, bones, tendons, ligaments, and other soft tissues. Chronic pain is associated with a variety of clinical conditions including, but not limited to, arthritis, spinal conditions, cancer, fibromyalgia, diabetes, surgical recovery, visceral injury, and general trauma.
Pain is a necessary protective reaction that alerts the body to the presence of actual or potential tissue damage so that necessary corrective responses can be mounted. Pain is signaled by specialized cells in the peripheral nervous system called nociceptors, or pain-sensing fibers. These pain-sensing fibers normally transmit information about stimuli that approach or exceed harmful intensity from different locations in the body to the brain, which registers this information as a sensation of pain. In the case of tissue injury due to trauma or infection, pain accompanies the associated inflammation, persists for the duration of the inflammatory response, and aids healing by inhibiting use of the affected body part.
Pain also can modify the central nervous system, such that the brain becomes sensitized and registers more pain with less provocation. This is called central sensitization. When central sensitization occurs, the nervous system goes through a process called wind-up and gets regulated in a persistent state of high reactivity. This persistent, or up-regulated, state of
reactivity lowers the threshold for what triggers the sensation of pain and can result in the sensation of pain even after the initial injury might have healed.
When there is dysfunction in pain signaling, injury to the nervous system, or an unhealed injury, pain becomes no longer just a symptom, but a disease in itself.
Soin Therapeutics
ALT5 Sigma Corporation acquired Soin Therapeutics, a company focused on the development of a novel formulation of low-dose naltrexone (“LDN”) for the treatment of chronic regional pain syndrome (“CRPS”) in 2022. CRPS is a rare pain disorder, characterized by a complex set of symptoms, affecting approximately 200,000 patients annually in the US. There are currently no approved treatments for patients with CRPS. Prior to the acquisition, Soin Therapeutics received Orphan Drug Designation for the product, which provides a variety of incentives for developing the product in this indication.
JAN123
Generally
JAN123 is a novel formulation of 2.0 mg of LDN that results in a biphasic release of the product. The release properties of JAN123 provide for an immediate release of less than half the product with a slow, sustained release of the remaining product. Importantly, the rapid release of LDN has been reported to lead to vivid and lucid unpleasant dreams, which should be eliminated with the formulation of JAN123. Initially, a single tablet of JAN123 will be administered orally, once a day before sleep, with eventual titration up to two tablets (4 mg) before sleep.
Naltrexone
Naltrexone was first synthesized in 1965 and approved by the FDA for the oral treatment of opioid dependence in 1984, with the brand name Trexan. Later it was approved for the oral treatment of alcohol dependence in 1995, when the brand name was changed by DuPont to ReVia. A depot formulation for intramuscular injection was approved by the FDA under the brand name Vivitrol for alcohol dependence in 2006 and opioid dependence in 2010. Typical oral doses are 50 to 100 mg daily, with a once-monthly intramuscular formulation also available. At these doses, Naltrexone has been shown to function as a nonselective opioid antagonist with a high affinity for µ opioid receptors, which decreases addiction cravings (Schumacher, Basbaum et al. 2017, Opioid Agonists &amp; Antagonists. Basic &amp; Clinical Pharmacology, 14e. B. G. Katzung. New York, NY, McGraw-Hill Education). However, there is a risk that patients who are non-compliant with oral naltrexone may experience opioid intoxication simply by skipping doses of naltrexone. Oral bioavailability is also variable from patient to patient, largely due to first-pass metabolism. Thus, naltrexone is pharmacologically effective, but may be ineffective in a real world setting without counseling and strong patient support (Minozzi, 2011, Oral naltrexone maintenance treatment for opioid dependence. Chchrane Database Syst Rev(4), CD001333). There are also multiple generic Naltrexone tablets available on the market for oral administration.
Low-Dose Naltrexone (LDN)
Compared to the standard dose, LDN is defined as a daily dose of Naltrexone of 1 to 5 mg, which is 10- to 100-fold lower than the dose used to manage substance use disorders (LDN Research Trust, Toljan and Vrooman 2018, Low-Dose Naltrexone (LDN)-Review of Therapeutic Utilization. Med Sci (Basel) 6(4)). Off-label uses of Naltrexone at lower doses have been explored based on a different mechanism of action for the treatment of inflammatory, rheumatologic, and neurologic conditions. These include multiple sclerosis, fibromyalgia, Crohn disease, chronic fatigue syndrome (CFS), and, more recently, CRPS. At the low doses used for these conditions, Naltrexone is thought to act as an immune modulator. Some speculate that this effect is related to reduced neuroinflammation in the case of disorders like CFS (Cant, Dalgleish et al. 2017, Naltrexone Inhibits IL-6 and TNFalpha Production in Human Immune Cell Subsets following Stimulation with Ligands for Intracellular Toll-Like Receptors. Front Immunol 8: 809).
Evidence suggests that, at low doses, Naltrexone antagonizes TLR4 on activated glial cells without the previously mentioned function as a mu-opioid receptor antagonist (Chopra and Cooper 2013, Treatment of Complex Regional Pain Syndrome (CRPS) using low-dose naltrexone LDN). J Neuroimmune Pharmacol 8(3): 470-476.). TLR4 has been shown to be a key mediator of microglial activation, which has been identified as a causal mechanism of neuropathic pain in CRPS. Microglial activation is associated with the release of pro-inflammatory cytokines, reactive oxygen species, and prostaglandins, which amplify the inflammatory response (Carniglia, Ramírez et al. 2017, Neuropeptides and Microglial Activation in Inflammation, Pain, and Neurodegenerative Diseases. Mediators of Inflammation 2017: 5048616). Thus, LDN presents a promising therapeutic avenue for the treatment of CRPS, a condition in which TLR4 upregulation is a
primary pathway, through attenuation of glial activation and direct targeting of TLR4 activity (Del Valle, Schwartzman et al. 2009, Spinal cord histopathological alterations in a patient with longstanding complex regional pain syndrome. Brain Behav Immun 23(1): 85-91. By downregulating the inflammatory cytokine release, LDN should be beneficial for CRPS patients.
CRPS patients suffer from severe debilitating pain, and even light touch or benign stimulation elicits extreme amounts of pain. Microglial cells and glial cells oftentimes are involved in this pain-signaling pathway. By reducing glial cell activation, Low-dose Naltrexone can treat this pain syndrome. Another potential mechanism of action of LDN treatment on pain is a paradoxical upregulation of opioid signaling. It is noted that, when taken at bedtime, the short-acting low-dose Naltrexone binds to receptors, which leads to a brief blockade of opioid receptors between 2 and 4 a.m. This blockade is believed to upregulate vital life elements of the body and cause an increase in endorphin and enkephalin production. This increase in endorphins and enkephalins will likely cause a decrease in pain that the patient experiences overall. Therefore, LDN leads to transient opioid receptor blockade, which triggers a positive feedback mechanism that increases the production of endogenous opioids (endogenous endorphins and enkephalins) and opioid signaling (Ludwig, Zagon et al. 2017, Serum [Met(5)]-enkephalin levels are reduced in multiple sclerosis and restored by low-dose naltrexone. Exp Biol Med (Maywood) 242(15): 1524-1533; Toljan and Vrooman 2018, Low-Dose Naltrexone (LDN)-Review of Therapeutic Utilization. Med Sci (Basel) 6(4)). Together, these mechanisms may work to alleviate pain associated with CRPS.
Interestingly, low-dose Naltrexone also has effects on the peripheral nervous system. In the peripheral nervous system, it was found that low-dose Naltrexone can modulate T and B lymphocyte production. And it was noticed that low-dose Naltrexone could reduce interleukin 6, interleukin 12, and tumor necrosis factor alpha in the periphery regarding peripheral nervous systems. CRPS patients often have an increase in inflammatory cytokines and may often note an increase in interleukin 6, 12, and tumor necrosis factor alpha. By reducing these inflammatory cytokines back to a normal state, it is predicted that low-dose Naltrexone could treat the actual disease state of CRPS.
In summary, low-dose Naltrexone has a very specific mechanism of action that will distinctly treat CRPS through inhibition of inflammatory cytokines, glial cell activation, neuroinflammation, and increase of endogenous enkephalins and endorphins. In other words, low-dose Naltrexone is not just treating the symptoms with this medication but also treating the underlying disease state and process specific to CRPS.
Chronic Regional Pain Syndrome (CRPS)
CRPS, also termed reflex sympathetic dystrophy (RSD), is a chronic, orphan neurologic condition that typically affects the extremities after trauma or nerve injury, and can cause severe pain. As the most common and prominent symptom of CRPS, the pain is often deep inside the limbs with a burning, stinging, or tearing sensation. Sensory changes are also common and may include increased sensitivity to painful stimuli, feeling pain from stimuli that are usually non-painful, and in some instances, sensory loss (e.g., numbness). In addition to pain, patients commonly experience an affected extremity that is warm, red, and swollen, at least initially. As CRPS progresses, it becomes refractory to sympathetic nerve blocks, conventional analgesics, anticonvulsants, and antidepressants.
CRPS is a rare neurologic disease. It is a painful progressive condition and is listed in the rare disease database of the National Organization for Rare Disorders (NORD). CRPS is subdivided into two categories: type I and type II CRPS. In CRPS type I, there are no nerve injuries or lesions identified. CRPS type I is also known as “reflex sympathetic dystrophy,” and it comprises about 90 percent of all cases of CRPS. CRPS type II (causalgia), on the other hand, is diagnosed when there is evidence of nerve damage. As described in the NORD, it was found that CRPS type I developed in 5.46 persons out of every 100,000 per year and the incidence rate of CRPS type 2 was 0.82 persons out of every 100,000 per year, giving rise to a combined incidence rate for both CRPS types I and II of 6.28 per 100,000 person-years (Sandroni, Benrud-Larson et al. 2003, Complex regional pain syndrome type I: incidence and prevalence in Olmsted county, a population-based study. Pain 103(1-2): 199-207; Goh, Chidambaram et al. 2017, Complex regional pain syndrome: a recent update. Burns Trauma 5: 2.).
The underlying cause of CRPS is not well understood. In most cases, it occurs after an illness or injury that did not directly damage the nerves in the affected area (Type I). In some cases, it occurs after a specific nerve injury (Type II). The exact trigger of CRPS after an injury is not known, but it may be due to abnormal interactions between the central and peripheral nervous systems and/or inappropriate inflammatory responses. There are multiple factors that may contribute to CRPS development, including immobilization, alterations to the nervous system of the body, and inflammation. Genetic factors and psychological factors, such as anxiety, depression, and anger, may also contribute to the symptoms of CRPS. However, there is no evidence that CRPS is a disease that can be caused by genetic factors alone, and the role of psychological factors in CRPS development remains unproven.
CRPS is treated by approaching it from different areas: physical therapy (PT), occupational therapy (OT), medications for pain management, neuromodulation through implantable devices, and/or nerve blocks targeting the sympathetic chain. Neridronate and zoledronate D,L-lysine monohydrate (ZLM) has been designated as an orphan drugs for the treatment of CRPS in 2013 and 2015, respectively. However, neither of them has been approved. Thus, there is no current FDA-approved drug for CRPS.
Clinical Studies of LDN on CRPS
LDN has been widely used for chronic pain and inflammatory condition and has been shown to alleviate symptoms of pain in patients with chronic pain. A number of case studies have also reported positive effects for LDN in the treatment of CRPS. Chopra et al. reported 2 patient case studies with CRPS who experienced significantly less pain with 4.5 mg daily LDN treatment (Chopra and Cooper 2013, Treatment of Complex Regional Pain Syndrome (CRPS) using low-dose naltrexone (LDN). J Neuroimmune Pharmacol 8(3): 470-476). The remission of pain and dystonic spasms in Case 1, as well as remission of all CRPS symptoms (including fixed dystonia) in Case 2, provide evidence that a multi-modal interventional approach, which includes low-dose Naltrexone (a known glial attenuator), should be considered as a treatment option for the treatment of CRPS patients, particularly those patients with dystonic movement disorders. In another CRPS case study, Sturn and Collin found alleviation of pain symptoms as early as 2 days after beginning LDN therapy, with significantly less pain at 4 weeks (Sturn and Collin 2016, Low-Dose Naltrexone: A New Therapy Option for Complex Regional Pain Syndrome Type I Patients. Int J Pharm Compd 20(3): 197-201). Weinstock et al reported alleviation of pain symptoms within one month of LDN treatment, with complete remission of CRPS leg symptoms by 16 months (Weinstock, Myers et al. 2016, Identification and Treatment of New Inflammatory Triggers for Complex Regional Pain Syndrome: Small Intestinal Bacterial Overgrowth and Obstructive Sleep Apnea. A A Case Rep 6(9): 272-276). In a recent case study, an CRPS patient was able to discontinue gabapentin and amitriptyline via the use of LDN, while simultaneously achieving superior pain relied (Soin, 2021, Management of pediatric complex regional pain syndrome with low-dose naltrexone. Pain Medicine Case Reports, 5(3), 109-113). LDN has been reported to have benefits related to other symptoms of chronic pain syndromes as well, including dystonic spasms, CRPS flares, energy, sleep disturbances, and mood.
Systematic literature review of LDN use showed that the most commonly reported AEs with LDN use were dizziness, vomiting, nausea, and vivid dreams (Soin et al. 2021, Low-Dose Naltrexone Use for Patients with Chronic Regional Pain Syndrome: A Systematic Literature Review. Pain Physician 24(4): E393-E406.). Other reported AEs included headaches, abdominal pain, gastrointestinal issues, peripheral edema, restlessness, falls, somnolence, irritability, hematological abnormalities, urinary infection, difficulty concentrating, anxiety, sleepiness, hot flashes/sweating, tachycardia, depression, muscle and joint pain, fatigue, tinnitus, heartburn, dry mouth, and joint pain. Another systematic review also evaluated occurrence of adverse events (AEs) and serious adverse events (SAEs) with LDN use and found that only mild AEs reported among the included studies (89 studies), including nausea, vomiting, and dizziness (Bolton, Hodkinson et al. 2019, Serious adverse events reported in placebo randomized controlled trials of oral naltrexone: a systematic review and meta-analysis. BMC Med 17(1): 10). Although 119 patients reported at least one SAE in the naltrexone study arm, meta-analysis found no difference between occurrence of SAEs in naltrexone and placebo groups. Furthermore, secondary analysis found only 6 AEs that were statistically significant: decreased appetite, dizziness, nausea, sleepiness, sweating, and vomiting.
Efficacy of low-dose naltrexone treatment on CRPS
Author (year) Symptoms Symptoms alleviated Time to alleviation of symptoms Dose AEs and SAEs
Chopra et al (2013) swelling, allodynia, color change, temperature change, some weakness, blisters, skin ulceration, dystonic spasms, dysesthesia Dystonic spasms, CRPS flares, energy, pain tolerance, sleep disturbances, pain, mood < 2 months 4.5 mg/day None
Sturn et al (2016) Pain Pain 2 days 1.5 mg None
Weinstock et al (2016) Severe leg pain, episodic pain in arms and nose, asymmetric and shiny skin with fluctuating temperature changes, color change, edema, IBS, atypical chest pain and fatigue, edema, blue discoloration, tenderness, joint hypermobility with EDS diagnosis Leg and bowel symptoms; all CRPS pain, bowel symptoms, and fatigue < 1 month 4.5 mg/day None
Orphan Drug Designation
An orphan disease is a rare disease affecting fewer than 200,000 people in the US. It is often a serious or fatal condition for which there are no effective therapies. In 1983, the Orphan Drug Act was passed to incentivize companies to develop drugs for patients with rare diseases. Orphan drug designation provides incentives to companies, including:
•Tax credits for qualifies clinical trials
•Exemption from user fees
•Potential for seven years of market exclusivity after approval
In addition, given the small number of patients with a disease and the severity of the disease, approvals are often granted with fewer and smaller trials, saving costs and time. JAN123 was granted Orphan Status for the treatment of CRPS.
Clinical Development Plan
LDN can be rapidly developed in the US via the 505(b)(2) regulatory pathway. This pathway is used for candidates that contain drugs that are already approved but come in a dosage form or delivery system that is different than the original, approved product. In this case, JAN123 fits these criteria perfectly. LDN has the added benefit of being developed at a much lower dose (< 5 milligrams) compared to approved naltrexone products, which are 50 milligrams per tablet. Therefore, it is likely that product development will consist of the following general steps:
•Manufacturing and approval of clinical batches of LDN tablets prior to clinical studies;
•Phase I pharmacokinetic study(ies) to confirm the release profile of LDN; and
•A single Phase III study to demonstrate efficacy in CRPS.
A protocol synopsis of the development plan is presented below:
Title of study Phase I: The Pharmacokinetincs of LDN in the fed and fasted state of a Single Oral Dose of LDN, 4 mg
Phase III: Double-Blind Placebo-Controlled Trial of Low-Dose Naltrexone to Treat Complex Regional Pain Syndrome (CRPS)
Clinical Phase Phase I: The Pharmacokinetincs of LDN in the fed and fasted state
Phase III: Registration/Efficacy Study to hopefully facilitate an NDA application for the use of low-dose naltrexone to treat CRPS
Objectives: Phase I: To determine pharmacokinetics of single oral low-dose naltrexone in healthy participants in fasting and fed state
Phase3: The primary objective is to assess the efficacy of low-dose naltrexone in treating complex regional pain syndrome symptoms (CRPS).
We plan to conduct a double-blind, randomized, placebo-controlled trial to treat CRPS using low-dose naltrexone.
For Efficacy:
1- Assess daily NRS (numerical pain scale 0 - 10) scores through the 3-month study
2- Study the possible changes or improvement in the Brief Pain Inventory (BPI) and Oswestry Disability Index (ODI) over the three-month study
For Safety:
We will also monitor safety labs on enrollment and termination of the study. However, we would like to point out that this drug has been available and FDA approved at much higher doses (50 - 150mg or higher) orally with a long-standing proven safety track record. The drug has been available with multiple different embodiments, route of administration and at much higher doses for quite a long time and the safety of the drug has already been extensively established and published.
Investigational product JAN123
Study Design Phase 1: Single-center, dual-arm, cross-over, open-label study
Phase 3: Study Description
We plan to conduct a randomized, double blind placebo controlled trial to treat Complex Regional Pain Syndrome. The study duration will be three months long. Patients in the treatment group will receive a single tablet for the first month of a 2mg dose of Naltrexone. Then, after 1 month, the patient will take 2 tablets for a total of 4mg for months 2 and 3. Study conclusion will be after 3 months.
Patients in the placebo group will take a single tablet for 1 month followed by 2 tablets for month 2 and 3.
A total number of 200 patients with a 1:1 randomization will used. Since CRPS is an orphan disease, we will likely have to use a total of 25 clinical sites or more to be able to adequately recruit the study.
Safety labs will be completed prior to first dose and upon study completion.
For clinical efficacy, we will be assessing daily NRS (1-10) pain scores, a brief pain inventory (BPI) at enrollment and at months 1, 2, and 3 (study completion) and Oswestry Disability Index (ODI) at enrollment and at months 1, 2, and 3 (study completion). Statistically significant improvement in pain scores or any scales in the BPI or ODI are desired outcomes.
Treatment Regimen and Route of Administration Study Drugs are as follows:
Phase I: Single Oral dose of JAN123, 4 mg given on separate days with and without food separated by a washout period of no less than 7 days
Phase III: Patients will be dosed with either the low-dose naltrexone or placebo for three months. Initially for the first month patients will take 1 tablet at bedtime (typically in the evenings) for the first month and then increase to 2 tablets for month 2 and 3. Specifically the Naltrexone will be 2mg tablets, such that for the first month with the 1 tablet per day the patient will be on 2mg doses and subsequently increase to 2 tablets in the evening for a total of 4mg.
Duration of treatment: Phase I: One day for each dose. Two doses of 2 mg each, in total, separated by a washout period of no less than 7 days.
Phase III: This will be a 3 month trial or approximately 90 days. Upon enrollment, patients will be on either low-dose naltrexone or placebo for 90 days.
Participant duration is expected to be 121 days, and at the conclusion of the study (approximately day 90 post-treatment) patients will come in for a final site visit to complete remaining surveys and within 7 days of completion the patients will obtain final safety labs which are anticipated to be a complete blood count and a comprehensive metabolic panel. Since Naltrexone is non-opioid based and does not have withdrawal issues, patients can immediately discontinue the therapy without concerns. As referenced earlier, the safety of Naltrexone orally is already well established and our tested doses are low.
Number of Centers Phase 1: Single Center Clinical Trial
Phase 3: Multicenter Clinical Trial
Likely 25 total sites. Keeping in mind this is an Orphan Disease state and recruitment may be quite difficult, we feel the need to have 25 clinical sites to enroll 200 patients.
Clinical sites will be likely Pain Management Centers, both academic and private practice facilities that have access to patients who suffer from CRPS and also include local PIs who have the skill set and ability to properly diagnose CRPS.
Local or regional clinical trial coordinators will be assigned to each site as well.
Enrolling participants are those who meet the diagnosis criteria of CRPS. Typically CRPS is diagnosed using the Budapest Criteria. Age range of 18 - 65 for enrollment, negative pregnancy test, and stable therapy for 3 months.
Subjects: Phase I: Adult male and female healthy subjects, 18-65 years of age, satisfying all inclusion and exclusion criteria.
Phase III: Patients diagnosed with CRPS (Complex Regional Pain Syndrome), Adult male and female patients, 18-65 years of age.
Number of
Subjects Phase I: 10 patients
Phase III: 200 patients
Endpoints Phase1: Primary Outcome Measure:
PK profile for low-dose naltrexone (Time Frame: Day 1: predose and at multiple time points after low-dose naltrexone administration).
•Cmax (Maximum observed plasma concentration)
•Tmax (Time to reach maximum plasma concentration)
•AUC0-t (Area under the plasma concentration-time curve from 0 hour to the time of the last quantifiable concentration)
•AUC0-inf (Area under the plasma concentration-time curve from 0 hour extrapolated to infinity)
•CL/F (Oral clearance)
Phase 3:
Primary Outcome Measure: Improvement in NRS pain scores over a 3-month time period.
Secondary Outcome Measure: Improvement in Brief Pain Inventory and Oswestry Disability Index (ODI) or other verified pain scales.
End of Study will occur upon completion of the 90-day trial of the low-dose naltrexone or placebo. It is expected that patients will complete all required surveys and testing requirements of the study.
Early termination is also a possible way to end the study due to issues such as side effects, adverse events or patient desire to withdraw from the study, among other reasons.
Safety
Assessments Standard clinical evaluation and objective measures will be employed to monitor and assess safety during the conduct of the trial. Furthermore, the results of safety assessments will be used during the trial to monitor and protect the safety of enrolled subjects. Strict subject and study stopping criteria will be implemented to protect the subject's well-being.
Intellectual Property
The composition of Naltrexone is off-patent and generic versions of the drug are available at 50 mg doses. LDN has been routinely compounded in compounding pharmacies and used clinically off-label. However, the 4.5 mg compounded tablets are associated with sleep disturbances, manifested in vivid and lucid unpleasant dreams. For these reasons, JAN-123 was developed as a biphasic release, orally available tablet to reduce the likelihood of unpleasant dreams. A provisional patent was filed in December 2020 and converted to a PCT application in November 2021 (Pub. No. US 2022/0202807 A1). US Patent number 11,752,143 B2 issued on September 12, 2023. The issued claims in this patent cover the use of the biphasic LDN formulation for treatment of patients with chronic pain. In addition, claims are made to the titration of the LDN for treating chronic pain. While there is no guarantee that the pending applications or future pending claims will issue, the
issued US patent will provide protection of JAN123 through 2040 and the Orphan Drug Designation provides 7 years of market exclusivity after drug approval in the event that there are any challenges to this patent.
Trade Secrets and Other Proprietary Information
In addition to patents, we rely on trade secrets and know-how to develop and maintain our competitive position. For example, we have developed methods for more efficient manufacture of the biphasic LDN. We seek to protect our proprietary information, in part, by confidentiality agreements and invention assignment agreements with our employees, consultants, scientific advisors, contractors, and commercial partners.
Soin Purchase Agreement
On December 28, 2022, we entered into a Purchase Agreement (the “Soin Purchase Agreement”) with Soin Therapeutics, LLC. Under the Soin Purchase Agreement, ALT5 Sigma Corporation acquired Soin Therapeutics and its LDN product, now known as JAN123. This all- stock transaction has a value of $13M, with up to an additional $17M depending on revenues generated by the product, for a total value of up to $30M. The transaction includes restrictions on the maximum number of shares of preferred stock and common stock that can be issued to or transferred by Soin Therapeutics at any given time.
Our Team
Tony Giordano, Ph.D., our Chief Scientific Officer, joined the Company in December 2019 from the Cleveland Clinic, the No.2 rated hospital in the country, where he served as Senior Director of Special Projects in the Business Development group. Dr. Giordano has extensive experience in drug development, having served as Vice President or President of seven different biotechnology companies he co-founded, including companies developing platform technologies, a cancer vaccine, and Alzheimer’s Disease and cardiovascular therapies. He has managed numerous clinical trials and the launch of a medical food product. Dr. Giordano has also served as an Associate Professor and Assistant Dean of Research and Business Development at LSU Health Sciences Center in Shreveport, Louisiana (“LSU Health Shreveport”), at which he led the licensing efforts at the campus and at Abbott Labs, where, in addition to serving as a Senior Research Scientist, he was involved in technology assessment activities. Dr. Giordano has a Ph.D. focused in Molecular Genetics from The Ohio State University and completed Fellowships at the NIH National Cancer Institute and the NIH National Institute of Aging.
JAN101
Generally
JAN101, formerly known as TV1001SR, is a patented oral, sustained-release pharmaceutical composition of sodium nitrite that targets poor blood flow to the extremities, such as those with vascular complications of diabetes or PAD and treats pain. A conclusion from a round of human studies found JAN101 prevents the prevalent reports of headaches by patients treated with an immediate release formulation of sodium nitrite. In a previous study of patients with PAD, a 40 mg BID treatment with immediate release sodium nitrite led to a statistically significant reduction in reported pain, while an 80 mg BID treatment had a more pronounced effect on bioactivity and Flow Mediated Dilation, a measure of vascular function. However, a number of subjects in both treatment groups reported headaches and dizziness following treatment. Although this did not result in subjects discontinuing treatment, JAN101 was developed to overcome this side effect. JAN101 was tested in a bridging study of diabetic neuropathy subjects and, during that bridging study, the subjects did not report headaches or dizziness. Subjects in this bridging study also reported less pain following treatment and improvements in bioactivity (quantitative sensory testing, a measure of nerve function) were similar to the PAD study, where the 80 mg dosing group had the greatest improvement in Flow Mediated Dilation. The ability to alleviate pain with BID treatment of JAN101 offers promise for a new non-addictive, non-sedating treatment of chronic pain.
Clinical Studies in Humans JAN101 Attributes
•Well-established safety profile
•Excellent bioavailability
•Lack of induced tolerance
•Non-narcotic
JAN101 does not mask pain, but instead treats the cause of pain by improving tissue and vascular function.
Benefits of Sodium Nitrite on Vascular Health
In initial research studies, sodium nitrite effectively restored ischemic tissue blood flow and was effective in a wide range of pathologies involving alterations of angiogenesis - development of new blood vessels - including diabetes, wound healing, and tissue necrosis. Beneficial effects include enhancing angiogenesis, endothelial cell proliferation, and arteriogenesis. There is also a strong association between reduced circulating nitrite levels and cardiovascular diseases in humans. We describe some of the associations and beneficial effects of sodium nitrite/nitrite below.
Plasma nitrite levels are negatively correlated to cardiovascular disease
Plasma nitrite levels were inversely related to number of cardiovascular risk factors a subject had and decreased plasma nitrite was associated with decreased flow mediated vasodilation (FMD) and increased intimal medial thickness (IMT) (both are indicators of vascular pathology). Kleinbongard, et al. (2006) Free Radic Biol and Medicine 40:295-302.
Plasma nitrite levels are reduced in diabetic and PAD patients
Exercise is a well-known stimulator of endothelial nitric oxide synthase activity, an enzyme that enhances nitric oxide (NO) production, which leads to increased plasma nitrite. In the study by Allen, et al., these authors revealed that baseline plasma levels of nitrite were less in patients with diabetes mellitus (DM) or DM + PAD. Importantly, increases in plasma nitrite levels were not observed in either DM, PAD, or DM + PAD patients after supervised exercise. These data reveal that baseline nitrite availability is compromised in DM patients and that supervised exercise is unable to increase plasma nitrite levels but actually results in a decrease in nitrite, highlighting a physiological efficiency of this molecule. Allen, et al., Nitric Oxide 2009 20:231-2377.
Skeletal Muscle Nitrite and Metabolite Levels are Reduced in Critical Limb Ischemia (CLI) Patients
Skeletal muscle nitrite, nitrosothiol (RSNO), nitric oxide-heme, and cGMP are all significantly reduced in CLI (the most severe form of PAD) patients. Diabetic patients with CLI show even further nitrite reductions.
In summary, nitrite levels in various cardiovascular and vascular diseases appear to be inversely related to the severity of the disease in humans:
•Lower nitrite levels are associated with higher level of heart failure;
•Lower nitrite levels are observed in diabetic patients with PAD and are not compensated by exercise; and
•Nitrite levels are lower in the muscles of patients with critical limb ischemia and are further reduced in diabetic subjects with critical limb ischemia.
Given the association between low levels of circulating nitrite and human diseases, supplementation with sodium nitrite has been studied preclinically in animals. Below are summaries of some of the more important findings:
•Promotes angiogenesis
•Stimulates wound healing
•Prevents tissue necrosis
From Arya, et al.
Nitrite Therapy Selectively Increases Ischemic Tissue Vascular Density in a NO-dependent Manner
Chronic sodium nitrite therapy increases ischemic tissue vascular density in a NO-dependent manner. A and B show representative images of CD31 (red) and DAPI nuclear (blue) staining from sodium nitrite and sodium nitrate ischemic gastrocnemius muscle tissue at day 7. C and D report the vascular density of ischemic gastrocnemius muscle tissue at days
3 and 7 for 165 μg/kg sodium nitrite and nitrate treatments, respectively. E and F demonstrate the vascular density of ischemic gastrocnemius muscle tissue at days 3 and 7 from 165 μg/kg sodium nitrite plus carboxy PTIO. (Scale bar, 150 μm.) n = 10 mice per treatment group. Kumar D., et al., PNAS; 2008; 105:7540-7545.
Nitrite Therapy Augments Arterial Perfusion of Ischemic Tissue
Chronic sodium nitrite therapy acutely increases ischemic tissue blood flow and stimulates arteriogenesis. A and B report 165 μg/kg sodium nitrite-induced acute changes in blood flow of chronically ischemic tissues at various time points with or without cPTIO, respectively. C reports the number of arterial branches between PBS and nitrite therapies. D and E illustrate vascular casting of the arterial vasculature in ischemic hind limbs of day 7 nitrite or PBS-treated mice, respectively. *, P < 0.01 vs. sodium nitrite. N = 10 mice per treatment group. Kumar D., et.al., PNAS;2008; 105:7540-7545.
Nitrite Therapy Restores Diabetic Ischemic Hind-Limb Blood Flow and Promotes Wound Heal
Unilateral femoral artery ligation was performed on 18-20 week old male Db/Db mice. Mice were randomized to PBS or sodium nitrite (165 μg/kg) therapy twice daily via I.P. injection. Laser doppler flowmetry was performed at the indicated time points. Increased wound dehiscence was noted in the PBS treated animals at day 7 but not in nitrite treated animals. (Bir, et al., Diabetes 2014, 63(1):270-81).
Nitrite Therapy Increases Diabetic Ischemia Induced Angiogenesis
Nitrite therapy prevented ischemia mediated endothelial cell density loss in normal C57BL/6J ischemic limbs. Nitrite therapy significantly restored endothelial cell density in ischemic limbs of diabetic mice to normal C57BL/6J levels compared to PBS therapy of non-ischemic and ischemic conditions. These data suggest that nitrite therapy may be useful in attenuating microvascular rarefaction due to loss of nitric oxide that is observed during metabolic dysfunction (Frisbee JC AJP Integr Comp Physiol 2005 289(2):R307-16; Stepp et al Microcirculation 2007 14(4-5): 311-6).
Delayed Nitrite Therapy Restores Ischemic Hind-Limb Blood Flow
Studies were performed to determine whether nitrite mediated therapy would be effective in tissue that had been left ischemic for 5 days after femoral artery ligation. Femoral artery ligation was performed in C57BL/6J mice and the animals
randomized to either PBS or sodium nitrite therapy 5 days after artery ligation. Treatments were given b.i.d. via I.P. injection. Ischemic limb blood flow was measured using laser doppler flowmetry. (Bir, et al., Diabetes 2014, 63(1):270-81).
Delayed nitrite therapy increases SPY angiogram arteriogenesis
Delayed nitrite therapy increases SPY angiogram arteriogenesis. Representative temporal SPY angiogram image stills (3-6s) are shown at 11 days following ligation and 6 days after beginning therapy (either PBS or sodium nitrite). Left: PBS control angiogram. Right: sodium nitrite angiogram following injection of ICG. n = 5 animals per cohort. Circles identify limb anatomical regions of vascular blush, whereas arrows indicate perfused vessels that progressively occur over time.
Bir, et al., Am J Physiol Heart Circ Physiol 2012;303:H178-H188.
Nitrite Therapy Prevents Tissue Necrosis in Aged Db/Db Mice
Delayed sodium nitrite (165 ug/kg) or control PBS therapy was stated 5 days post-femoral artery ligation in nine-month old Db/Db mice. Nitrite therapy significantly prevented tissue necrosis (panel B) compared to control PBS therapy (panel A). Panel D reports tissue necrosis severity as a function of degree of limb and digit involvement. Nitrite therapy, but not PBS control or sodium nitrate, significantly prevented tissue necrosis. (Bir, et al., Diabetes 2014, 63(1):270-81).
Nitrite and Hind Limb Ischemia Summary
Sodium nitrite has long been known to be a potent vasodilator (transiently increasing blood vessel diameter) that can lead to a drop in blood pressure when given acutely. The above studies indicate that chronic administration at low doses promotes angiogenesis, unlike one-time nitrite therapy, which does not stimulate angiogenesis. In addition, these studies and a large number of other studies not reviewed above show:
•Nitrite therapy is very specific, acting only in damaged, ischemic tissue;
•Delayed nitrite therapy effectively restores ischemic tissue blood flow;
•Nitrite therapy is effective in a wide range of pathologies involving alterations of angiogenesis including critical limb ischemia, heart failure, and tissue necrosis;
•Nitrite supplementation has had positive effects in various diabetes models, including diabetic nephropathy and diabetic wound healing;
•Beneficial effects center on enhancing angiogenesis, endothelial cell proliferation, and arteriogenesis; and
•Sustained release nitrite therapy, unlike immediate release therapy, does not lead to vasodilation or a drop in blood pressure.
JAN101
JAN 101 is designed to treat diseases associated with poor vascular function. The following table summarizes our current product candidate:
According to a research study by Stanford University, more than 24% of patients with PAD are at risk of high opioid use. By treating pain at the source and presenting patients and physicians with better and safer treatment alternatives, we expect to minimize opioids at the prescription pad.
Peripheral artery disease
Peripheral artery disease (“PAD”) is a general term for conditions in which arterial blood flow to the limbs is partially blocked. When there is less blood present in the extremities relative to demand, muscle pain and fatigue result, especially in the calf, which is also known as “intermittent claudication.” In many patients, pain and fatigue are relieved through rest. Roughly half of patients with PAD are asymptomatic. The most common cause of PAD / intermittent claudication is atherosclerosis. Diabetes, chronic kidney disease, hypertension, and smoking are all risk factors that can increase the likelihood of PAD. In atherosclerosis, fat deposits (plaques) build up along arterial walls, resulting in a reduction in blood flow in the legs. This same process can cause strokes if the arteries leading up to the brain are affected.
Because of the high rate of asymptomatic patients, prevalence figures vary widely. Some estimate that up to 200 million people worldwide have PAD, ranging from asymptomatic disease to severe. Prevalence increases as a function of patient age, rising sharply after the age of 60. Thus, in countries with an aging population, it is expected that the prevalence of PAD will only increase. There is also a strong ethnic and racial component to PAD prevalence, which may be due to cultural differences in diet and exercise, along with genetic differences. Some suggest a prevalence of eight to 12 million in the United States alone, with roughly one-third experiencing pain when walking, which improves upon resting. The diagnosis of PAD usually begins with patient complaints of pain in the extremities. If the patient is already being treated or monitored for diabetes or other risk factors, then the physician will check for a weak or absent pulse in the extremity. Decreased blood pressure, poor wound healing, and whooshing sounds (via stethoscope) in the legs are also tell-tale signs of PAD / intermittent claudication. Angiograms, electrocardiograms, and ultrasounds can also be used to image and confirm the diagnosis.
Figure 1: Ethnic-specific prevalence of PAD in men in the US, by age. NHW = Non-Hispanic Whites,
AA = African American, HS = Hispanics, AS = Asian Americans, AI = American Indians. Source: (Criqui, 2015)
The non-drug treatment of PAD / intermittent claudication may be divided into four general categories:
•Lifestyle - Primarily changes in diet and smoking cessation.
•Exercise - Patients who walk, cycle, stretch, or swim can experience marked improvement. Formal programs involving treadmills and track walking (usually three to five times per week) are frequently provided to patients. However, if the pain is triggered by exercise (claudication) and is significant, it can discourage the patient from exercise.
•Angioplasty - A procedure by which the affected artery is stretched with a balloon-like device. This procedure has limited effectiveness and is reserved for severely blocked arteries.
•Bypass Surgery - Arteries that are beyond angioplasty can be bypassed entirely. This procedure is typically reserved for cases where the blockage is considered very long (~10 centimeters) and nearly complete.
The underlying condition is not addressed by surgery. Surgical approaches will not, in the long run, improve exercise capacity and walking distance. Only exercise itself, coupled with lifestyle changes and drug approaches, has this benefit.
Prescription drugs for the treatment of the underlying PAD may be divided into multiple categories, depending on the underlying condition and severity:
•Cholesterol-Lowering Agents - Statins and bile acid sequestrants.
•Antiplatelet Medications - Aspirin and related drugs, such as clopidogrel. Cilostazol also has antiplatelet properties.
•Antihypertensives - Patients with underlying high blood pressure can and will receive any number of medications to reduce blood pressure, such as ACE inhibitors and diuretics.
•Diabetes Therapies - While a substantial portion of PAD patients may have pre-diabetes or fulminant diabetes, it is unknown if aggressive treatment of diabetes has a positive effect on PAD.
•Pain - To our knowledge, no drugs are specifically indicated for PAD-associated pain. Pentoxifylline, for example, is indicated “…for the treatment of patients with intermittent claudication on the basis of chronic occlusive arterial disease of the limbs.” (Sanofi-Aventis U.S. LLC, 2010). However, the evidence supporting the effectiveness of pentoxifylline is mixed. Short-term courses of NSAIDs, such as ibuprofen, may be used, provided the patient is not on another anticoagulant, like aspirin. Non-drug pain relievers, such as TENS and massage therapy, may also be used in these patients. Opioids may also be used, which creates a risk for addiction and potential misuse at the medicine cabinet by family members.
The lack of any truly effective treatment of PAD, along with encouraging early trial results using JAN101 on both improving vascular function and reducing pain in PAD patients, has created an opportunity potentially to treat this large unmet medical need. By improving vascular function, JAN101 has the potential to reduce associated pain and improve PAD patients’ quality of life.
Our Strategy
Our focus is to develop and commercialize novel, non-opioid, and non-addictive therapies to address, safely and effectively, the significant unmet medical need of chronic pain or treat conditions that cause pain. The principal elements of our strategy to achieve this mission are the following:
•License, acquire, develop, and create novel, non-opioid and non-addictive therapies by leveraging our understanding of pain biology to address the large and growing problem of pain. While innovation in medical sciences has led to exciting new treatment options in many disease areas, pain has seen limited innovation in recent years. We have a deep understanding of the pathophysiology of pain and diseases that cause pain. We intend to leverage this understanding to bring innovation in the pain treatment paradigm through targeted acquisitions of companies or assets in development. Our advisors and doctors have years of collective experience in leadership positions at institutions and substantial scientific experience and understand the complexity of designing and executing clinical trials for and developing therapies.
•Leverage our management team background and expertise. We have assembled a team with extensive experience described above.
Current Therapeutic Approaches to Treating Chronic Pain and Their Limitations
NSAIDs
Some of the most widely used therapies to treat chronic inflammatory pain are non-steroidal anti-inflammatory drugs (“NSAIDs”). NSAIDs can have significant side effects that include gastrointestinal bleeding, gastritis, high blood pressure, fluid retention, kidney problems, heart problems, and rashes. On April 7, 2005, the FDA announced a decision to require boxed warnings of potential cardiovascular risk for all NSAIDs.
Corticosteroids
Corticosteroids, or steroids, also possess anti-inflammatory properties and are commonly used in the practice of pain management, either systemically or locally, depending on the condition. Steroids work by decreasing inflammation and reducing the activity of the immune system. While steroids are commonly used, they may have numerous and serious side effects. These side effects may include allergic or hypersensitivity reactions, increased risk for infection, adrenal insufficiency, diabetes or decreased glucose tolerance, hypertension, loss of bone density, and loss of joint cartilage volume. In addition, steroids should not be administered when there is an infection present because steroids can inhibit the body’s natural infection-fighting immune response. Also, if a joint is already damaged or is subject to chronic deterioration, intra-articular, or IA steroid injections are not likely to provide any long-term restorative benefit. For the above reasons, IA steroid injections are generally recommended to be administered no more often than every six weeks and not more than three to four times per year.
Opioids
Opioids are some of the most widely prescribed therapeutics for chronic and acute pain, and sales of these drugs have quadrupled between 1999 and 2010. According to a National Survey on Drug Use and Health report, in 2016 more than one-third of adult Americans were prescribed opioids and 230 million opioid prescriptions were written that year in the United States. Opioids act by binding to specific receptors located on neurons in both the central and peripheral nervous system throughout the body including in the brain, spinal cord, and other nervous tissue. Although they can be effective in providing pain relief, the increased medical use of opioids has been accompanied by an increase in the abuse and misuse of prescription opioids. In addition, for most patients, chronic opioid use is a poor option due to an intolerance to the many side effects, including nausea, vomiting, drowsiness, and constipation, and the propensity for opioids to become less effective with long-term use. According to the Centers for Disease Control and Prevention (the “CDC”), almost two million individuals abused or were dependent on prescription opioids in 2014. CDC figures show that the number of opioid-related overdose deaths has quadrupled between 1999 and 2010, and currently approximately 40% of opioid overdose deaths in the United States involve a prescription opioid. This increase in prescription opioid-related deaths in the United States prompted former President Trump to declare the opioid crisis a national Public Health Emergency in October
2017. Opioid abuse has become an epidemic in the United States, ranking as the nation’s second most prevalent illegal drug problem. These major issues create the need to find new approaches to treating chronic pain.
Our Approach to Treating PAD and Chronic Pain
The unmet medical need for treating PAD and chronic pain reflects the historic failure to develop novel classes of analgesics with comparable or greater efficacy, an acceptable level of adverse effects and a lower abuse liability than those currently available. Some of the reasons for this include the heterogeneity of chronic pain and its related conditions, and the complexity and diversity of the underlying pathophysiological mechanisms for pain. However, recent advances in the understanding of the neurobiology of pain are beginning to offer opportunities to identify new drug targets and develop new therapeutic strategies.
We have taken an innovative and targeted approach to identifying treatments for chronic pain that leverages our understanding of the pathophysiology of pain. Pain is variable. For example, it can be inflammatory or neuropathic in nature, and it may be localized to a specific area of the body or it may be generalized throughout. We believe that the most effective way to treat chronic pain is through therapies that specifically target the origin of the pain signal. We strive to maximize JAN 101’s potential based on its unique mechanism of action related to the origin of the pain signal.
A Randomized, Double-Blind Study of the Effects of a Sustained Release Formulation of Sodium Nitrite (SR-nitrite) on Patients with Diabetic Neuropathy
Background: Sodium nitrite has been reported to be effective in reducing chronic peripheral pain.
Objectives: To evaluate the safety and efficacy of 40 and 80 mg, BID, of an oral sustained-release formulation of sodium nitrite (SR-nitrite) in patients suffering from diabetic neuropathy, and to determine whether SR-nitrite would reduce the frequency of headaches reported previously by subjects receiving the same doses of an immediate release formulation. Study Design: Phase II, single-center, randomized, double-blind, placebo-controlled clinical trial. Setting: The Ohio Pain Clinic and Kettering Medical Center.
Methods: Twenty-four patients were randomized to 40 mg or 80 mg SR-nitrite or placebo twice daily for 12 weeks. The primary objective was to determine whether headaches would be reduced using SR-nitrite. The primary efficacy endpoint was the mean difference in the change of the Neuropathic Pain Symptom Inventory (NPSI) pain score from baseline to that reported after 12 weeks of treatment. Secondary endpoints included changes from baseline for the Brief Pain Inventory (BPI) Scale, the RAND 36 questionnaire, Short-Form McGill Questionnaire, daily patient reported score for neuropathic pain, changes in HbA1c, PulseOx, and quantitative sensory testing.
Results: The number of subjects reporting adverse events and the number of adverse events did not change with dose. There were no reports of treatment-related headaches. Although no significant differences were identified in patient responses to the questionnaires, a trend was observed. In the NPSI assessment, patients in the 40 mg and 80 mg dosing groups reported a 12.7% and 22.0% reduction in pain, respectively, compared to an 8.4% reduction by patients in the placebo group. A trend was also observed with the BPI total severity score. However, the 40 mg dosing group reported the greatest reduction in pain using the McGill Pain index and via patient logs of daily pain scores, where the mean of pain scores reported by subjects in the 40 mg group dropped by day 41 and generally stayed lower than the mean of scores reported by subjects in either of the other two groups. Patients in the 80 mg SR-nitrite group had an improvement in both Nerve Sensory Conductance and Nerve Sensory Velocity. No changes were observed in HbA1c levels or PulseOx.
Limitations: Small sample size.
Conclusion: Sustained release sodium nitrite prevents the prevalent reports of headaches by patients treated with an immediate release formulation of sodium nitrite. In a previous study of patients with peripheral arterial disease (PAD), 40 mg BID treatment led to a statistically significant reduction in reported pain. Similar trends were observed at the end of the trial period for most of the pain questionnaires used in the study. The 80 mg BID treatment had the more pronounced effect on bioactivity (quantitative sensory testing), which was similar to the PAD study, where this dosing group had the greatest improvement in Flow Mediated Dilation . The ability to alleviate pain with BID treatment of SR-nitrite offers promise for a new non-addictive, non-sedating treatment of chronic pain and warrants further study.
JAN101-Regulatory Strategy
Sodium nitrite has been previously approved as one of the active components of cyanide poisoning antidote. This means the approval path for JAN101 is likely through a 505(b)(2) (“NDA”).
JAN101-Commercial Strategy
We currently intend to use third-party providers and manufacturers to support the commercialization JAN101, if we are successful in obtaining FDA approval. We believe that we can promote JAN101 to the patients suffering from PAD in a cost effective manner. We anticipate our commercial operation will include outside sales management, outside sales support, distribution support, and an internal marketing group. Additional requisite capabilities will include focused management of key accounts, such as managed-care organizations, group purchasing organizations, and government accounts. We intend selectively to partner with third parties with vast experience in the space, as we have been partnering for every aspect of development.
Competition
The biotechnology and pharmaceutical industries are characterized by extensive research and development efforts, rapidly advancing technologies, intense competition, and a strong emphasis on proprietary products. We are currently focused on the development and commercialization of our asset pipeline of novel, non-opioid, and non-addictive therapies for PAD. The number of patients suffering from chronic PAD is large and growing. While we believe that JAN 101 and our Chief Scientific Officer’s development experience and scientific knowledge provide us with competitive advantages, we face potential competition from many different sources, including pharmaceutical, biotechnology, and specialty pharmaceutical companies that market or develop therapeutics to treat chronic pain. Academic research institutions, governmental agencies, as well as public and private institutions are also potential sources of competitive products and technologies. Our competitors may have significantly greater financial resources, robust drug pipelines, established presence in the market, and expertise in research and development, manufacturing, pre-clinical and clinical testing, obtaining regulatory approvals and reimbursement, and marketing approved products than we do. These competitors also compete with us in recruiting and retaining qualified clinical, regulatory, scientific, sales, marketing, and management personnel, establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. The key competitive factors affecting the success of JAN 101 (as well as other subsequent product candidates), if and when approved, is likely to be its efficacy, durability, safety, price, and the availability of reimbursement from government and other third-party payors.
Significant competition exists in the PAD pain field. Although we believe our approach to developing novel treatments for pain is unique from most other existing or investigational therapies, such as NSAIDs, corticosteroids, and opioids, we will need to compete with all currently available and future therapies within the indications where our development is focused. With respect to JAN101, the main classes of marketed products that are available for the treatment of PAD pain include NSAIDs and opioids. Furthermore, numerous monoclonal antibodies targeting nerve growth factor, or NGF inhibitors, are in clinical development, including two product candidates in Phase III.
There are a number of companies developing or marketing therapies for the treatment and management of pain that may compete with JAN 101, including many major pharmaceutical and biotechnology companies.
Intellectual Property
Our success depends in large part upon our ability to obtain and maintain proprietary protection for our products and technologies, and to operate without infringing or otherwise violating the proprietary rights of others. We endeavor to protect our products using a combination of intellectual property protections and available government regulatory and marketing exclusivities afforded to new medicines. For example, we endeavor to protect our products by, among other methods, filing United States and foreign patent applications related to our proprietary technology, inventions, and improvements that are important to the development and implementation of our business. We also use other forms of protection, such as confidential information, trade secrets, and know-how, and trademarks to protect our intellectual property, particularly where we do not believe patent protection is appropriate or obtainable.
The proprietary nature of, and protection for, JAN 101, processes, and know-how are important to our business. Our policy is to pursue, maintain, and defend intellectual property rights, and to protect the technology, inventions, and improvements that are commercially important to our business.
Trade Secrets and Other Proprietary Information
In addition to patents, we rely on trade secrets and know-how to develop and maintain our competitive position. For example, we have developed methods for more efficient manufacture of sustained released sodium nitrite tablets. We seek
to protect our proprietary information, in part, by confidentiality agreements and invention assignment agreements with our employees, consultants, scientific advisors, contractors, and commercial partners.
License Agreement
On November 19, 2019, we entered into a Patent and Know How License Agreement (the “License Agreement”) with UAB Research Foundation (“UABRF”), TheraPAD, and the Board of Supervisors of Louisiana State University and Agricultural and Mechanical College, acting on behalf of LSU Health Shreveport, together with UABRF and TheraPAD collectively, the “Licensors”). Under the License Agreement, the Licensors have agreed to grant to ALT5 Sigma Corporation an exclusive, worldwide license, including the right to sublicense, to the Licensors’ patent rights and know-how related to the Licensors’ sustained release formulation of sodium nitrite. Under the License Agreement, we have agreed to pay a non-refundable upfront license fee and certain milestone payments upon the achievement of certain milestones of up to approximately $6.5 million and certain royalty payments and annual license maintenance fees. The License Agreement requires us to use commercially reasonable efforts to develop and commercialize JAN101.
Commercial Operations
We currently do not have any marketing and sales organization dedicated to the Biotechnology segment. We have retained global rights to JAN-101 and JAN123, and, if either of them or one of our potential subsequent product candidates is approved by the FDA to market in the United States, we expect that our sales force will be supported by sales management, internal sales support, an outside marketing group, and distribution support. We intend to invest in our commercial capabilities prudently by focusing our marketing efforts on the physician subspecialties that treat patients. These physicians include, but are not limited to, pain management specialists, rheumatologist, surgeons, and sports medicine physicians. We will also evaluate licensing and partnering with third parties to help us reach other sales channels and geographic markets inside and outside of the United States.
Government Regulation
The FDA and comparable regulatory authorities in state and local jurisdictions and in other countries impose substantial and burdensome requirements upon companies involved in the clinical development, manufacture, marketing, and distribution of drugs, such as those we are developing. These agencies, and other federal, state, and local entities regulate, among other things, the research and development, testing, manufacture, quality control, safety, effectiveness, labeling, storage, record keeping, approval, advertising and promotion, distribution, post-approval monitoring and reporting, sampling, and export and import of product candidates.
U.S. Government Regulation of Drug Products
In the United States, the FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act (the “FDCA”) and its implementing regulations. The process of obtaining regulatory approvals and the subsequent compliance with applicable federal, state, local, and foreign statutes and regulations requires the expenditure of substantial time and financial resources. Failure to comply with the applicable United States requirements at any time during the product development process, the approval process, or thereafter, may subject an applicant to a variety of administrative or judicial sanctions, such as the FDA’s refusal to approve pending applications, withdrawal of an approval, imposition of a clinical hold, issuance of warning letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, refusals of government contracts, restitution, disgorgement, or civil or criminal penalties.
The process required by the FDA before a drug may be marketed in the United States generally involves the following:
•completion of pre-clinical laboratory tests, animal studies, and formulation studies in compliance with the FDA’s good laboratory practice (“GLP”), regulations;
•submission to the FDA of an Investigational New Drug Application (“IND”), which must become effective before human clinical trials may begin;
•approval by an institutional research board (“IRB”) at each clinical site before each trial may be initiated;
•performance of adequate and well-controlled human clinical trials in accordance with good clinical practice (“GCP”) requirements to establish the safety and efficacy of the proposed drug product for each indication;
•submission to the FDA of a new drug application (NDA);
•satisfactory completion of an FDA advisory committee review, if applicable;
•satisfactory completion of an FDA inspection of the manufacturing facility or facilities at which the product is produced to assess compliance with current good manufacturing practices (“cGMP”) requirements and to assure that the facilities, methods, and controls are adequate to preserve the drug’s identity, strength, quality, and purity;
•satisfactory completion of FDA audits of clinical trial sites to assure compliance with GCPs and the integrity of the clinical data;
•payment of user fees and securing FDA and approval of the NDA; and
•compliance with any post-approval requirements, including the potential requirement to implement a risk evaluation and mitigation strategy (“REMS”), and the potential requirement to conduct post-approval studies.
Pre-clinical Studies
Pre-clinical studies include laboratory evaluation of product chemistry, toxicity, and formulation, as well as animal studies to assess potential safety and efficacy. An IND sponsor must submit the results of the pre-clinical tests, together with manufacturing information, analytical data, and any available clinical data or literature, among other things, to the FDA as part of an IND. Some pre-clinical testing may continue even after the IND is submitted. An IND automatically becomes effective 30 days after receipt by the FDA, unless before that time the FDA raises concerns or questions related to one or more proposed clinical trials and places the clinical trial on a clinical hold. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. As a result, submission of an IND may not result in the FDA allowing clinical trials to commence. Clinical holds also may be imposed by the FDA at any time before or during clinical trials, due to safety concerns about on-going or proposed clinical trials, or non-compliance with specific FDA requirements, and the trials may not begin or continue until the FDA notifies the sponsor that the hold has been lifted. Through the 505(b)2 regulatory path, the FDA allows a sponsor to rely on well documented, published studies to support the clinical development of the product. The FDA has indicated that it will accept published data in support of the Company’s development program for JAN101 but prior to filing an NDA would require the Company to complete developmental and reproductive toxicology studies.
Clinical Trials
Clinical trials involve the administration of the investigational new drug to human subjects under the supervision of qualified investigators in accordance with GCP requirements, which include the requirement that all research subjects provide their informed consent in writing for their participation in any clinical trial. Clinical trials are conducted under protocols detailing, among other things, the objectives of the trial, the parameters to be used in monitoring safety, and the effectiveness criteria to be evaluated. A protocol for each clinical trial and any subsequent protocol amendments must be submitted to the FDA as part of the IND. In addition, an IRB at each institution participating in the clinical trial must review and approve the plan for any clinical trial before it commences at that institution. Information about certain clinical trials must be submitted within specific timeframes to the NIH for public dissemination on their www.clinicaltrials.gov website. The information contained in, or accessible through, this website does not constitute a part of this Annual Report. We have included this website address solely as an inactive, textual reference.
Human clinical trials are typically conducted in three sequential phases, which may overlap or be combined:
•Phase I: The drug is initially introduced into healthy human subjects or patients with the target disease or condition and tested for safety, dosage tolerance, absorption, metabolism, distribution, and excretion and, if possible, to gain an early indication of its effectiveness.
•Phase II: The drug is administered to a limited patient population to identify possible adverse effects and safety risks, to evaluate the efficacy of the product for specific targeted diseases preliminarily, and to determine dosage tolerance and optimal dosage.
•Phase III: The drug is administered to an expanded patient population, generally at geographically dispersed clinical trial sites, in well-controlled clinical trials to generate sufficient data statistically to evaluate the efficacy and safety of the product for approval, to establish the overall risk-benefit profile of the product, and to provide adequate information for the labeling of the product.
Post-approval trials, sometimes referred to as Phase IV clinical trials, may be conducted after initial marketing approval. These trials are used to gain additional experience from the treatment of patients in the intended therapeutic indication. In certain instances, the FDA may mandate the performance of Phase IV clinical trials as a condition of approval of an NDA.
The FDA or the sponsor may suspend a clinical trial at any time on various grounds, including a finding that the research subjects or patients are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the drug has been associated with unexpected serious harm to patients. In addition, some clinical trials are overseen by an independent group of qualified experts organized by the sponsor, known as a data safety monitoring board or committee. Depending on its charter, this group may determine whether a trial may move forward at designated check points based on access to certain data from the trial.
During the development of a new drug, sponsors are given opportunities to meet with the FDA at certain points. These points may be prior to submission of an IND, at the end of Phase II, and before an NDA is submitted. Meetings at other times may be requested. These meetings can provide an opportunity for the sponsor to share information about the data gathered to date, for the FDA to provide advice, and for the sponsor and the FDA to reach agreement on the next phase of development. Sponsors typically use the meetings at the end of the Phase II clinical trial to discuss Phase II clinical results and present plans for the pivotal Phase III clinical trials that they believe will support approval of the new drug. ALT5 Sigma Corporation submitted briefing materials in 2021 describing the previous research and development activities and planned clinical trials.
Concurrently with clinical trials, companies usually complete additional animal studies and must also develop additional information about the chemistry and physical characteristics of the drug and finalize a process for manufacturing the product in commercial quantities in accordance with cGMP requirements. The manufacturing process must be capable of consistently producing quality batches of product candidates and, among other things, the manufacturer must develop methods for testing the identity, strength, quality, and purity of the final drug. In addition, appropriate packaging must be selected and tested and stability studies must be conducted to demonstrate that the product candidate does not undergo unacceptable deterioration over its shelf life.
While the IND is active and before approval, progress reports summarizing the results of the clinical trials and non-clinical studies performed since the last progress report must be submitted at least annually to the FDA, and written IND safety reports must be submitted to the FDA and investigators for serious and unexpected suspected adverse events, findings from other studies suggesting a significant risk to humans exposed to the same or similar drugs, findings from animal or in vitro testing suggesting a significant risk to humans, and any clinically important increased incidence of a serious suspected adverse reaction compared to that listed in the protocol or investigator brochure.
United States Review and Approval Process
The results of product development, pre-clinical, and other non-clinical studies and clinical trials, along with descriptions of the manufacturing process, analytical tests conducted on the chemistry of the drug, proposed labeling, and other relevant information are submitted to the FDA as part of an NDA requesting approval to market the product. The submission of an NDA is subject to the payment of substantial user fees; a waiver of such fees may be obtained under certain limited circumstances. The FDA reviews an NDA to determine, among other things, whether a product is safe and effective for its intended use and whether its manufacturing is cGMP-compliant to assure and preserve the product’s identity, strength, quality and purity. Under the Prescription Drug User Fee Act (the “PDUFA”), guidelines that are currently in effect, the FDA has a goal of 10 months from the date of “filing” of a standard NDA for a new molecular entity to review and act on the submission. This review typically takes 12 months from the date the NDA is submitted to FDA because the FDA has approximately two months to make a “filing” decision after the application is submitted. The FDA conducts a preliminary review of all NDAs within the first 60 days after submission, before accepting them for filing, to determine whether they are sufficiently complete to permit substantive review. The FDA may request additional information rather than accept an NDA for filing. In this event, the NDA must be resubmitted with the additional information. The resubmitted application also is subject to review before the FDA accepts it for filing.
The FDA may refer an application for a novel drug to an advisory committee. An advisory committee is a panel of independent experts, including clinicians and other scientific experts, that reviews, evaluates, and provides a recommendation as to whether the application should be approved and under what conditions. The FDA is not bound by the recommendations of an advisory committee; but, it considers such recommendations carefully when making decisions.
Before approving an NDA, the FDA will inspect the facility or facilities where the product is manufactured. The FDA will not approve an application unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product within required specifications. Additionally, before approving an NDA, the FDA may inspect one or more clinical trial sites to assure compliance with GCP requirements.
After the FDA evaluates an NDA, it will issue an approval letter or a Complete Response Letter. An approval letter authorizes commercial marketing of the drug with prescribing information for specific indications. A Complete Response Letter indicates that the review cycle of the application is complete and the application will not be approved in its present form. A Complete Response Letter usually describes the specific deficiencies in the NDA identified by the FDA and may require additional clinical data, such as an additional Phase III trial or other significant and time-consuming requirements related to clinical trials, non-clinical studies, or manufacturing. If a Complete Response Letter is issued, the sponsor must resubmit the NDA that addresses all of the deficiencies identified in the letter, or withdraw the application. Even if such additional data and information are submitted, the FDA may decide that the NDA does not satisfy the criteria for approval.
If a product receives regulatory approval, the approval may be significantly limited to specific diseases and dosages or the indications for use may otherwise be limited, which could restrict the commercial value of the product. In addition, the FDA may require a sponsor to conduct Phase IV clinical testing, which involves clinical trials designed to assess a drug’s safety and effectiveness further after NDA approval, and may require testing and surveillance programs to monitor the safety of approved products that already have been commercialized. The FDA may also place other conditions on approval, including the requirement for REMS, to assure the safe use of the drug. If the FDA concludes a REMS is needed, the sponsor of the NDA must submit a proposed REMS. The FDA will not approve the NDA without an approved REMS, if required. A REMS could include medication guides, physician communication plans, or elements to assure safe use, such as restricted distribution methods, patient registries, and other risk minimization tools. Any of these limitations on approval or marketing could restrict the commercial promotion, distribution, prescription, or dispensing of products. Marketing approval may be withdrawn for non-compliance with regulatory requirements or if problems occur following initial marketing.
The Food and Drug Administration Safety and Innovation Act (the “FDASIA”) made permanent the Pediatric Research Equity Act (the “PREA”), which requires a sponsor to conduct pediatric clinical trials for most drugs, for a new active ingredient, new indication, new dosage form, new dosing regimen, or new route of administration. Under PREA, original NDAs and supplements must contain a pediatric assessment unless the sponsor has received a deferral or waiver. The required assessment must evaluate the safety and effectiveness of the product for the claimed indications in all relevant pediatric subpopulations and support dosing and administration for each pediatric subpopulation for which the product is safe and effective. The sponsor or the FDA may request a deferral of pediatric clinical trials for some or all of the pediatric subpopulations. A deferral may be granted for several reasons, including a finding that the drug is ready for approval for use in adults before pediatric clinical trials are complete or that additional safety or effectiveness data needs to be collected before the pediatric clinical trials begin. The FDA must send a non-compliance letter to any sponsor that fails to submit the required assessment, keep a deferral current or fails to submit a request for approval of a pediatric formulation.
Special FDA Expedited Review and Approval Programs
The FDA has various programs, including Fast Track Designation, accelerated approval, priority review, and breakthrough therapy designation, which are intended to expedite or simplify the process for the development and FDA review of drugs that are intended for the treatment of serious or life-threatening diseases or conditions and demonstrate the potential to address unmet medical needs. The purpose of these programs is to provide important new drugs to patients earlier than under standard FDA review procedures.
To be eligible for a Fast Track Designation, the FDA must determine, based on the request of a sponsor, that a product is intended to treat a serious or life-threatening disease or condition and demonstrates the potential to address an unmet medical need. The FDA will determine that a product will fill an unmet medical need if it will provide a therapy where none exists or provide a therapy that may be potentially superior to existing therapy based on efficacy or safety factors. The FDA may review sections of the NDA for a fast track product on a rolling basis before the complete application is submitted, if the sponsor provides a schedule for the submission of the sections of the NDA, the FDA agrees to accept sections of the NDA and determines that the schedule is acceptable, and the sponsor pays any required user fees upon submission of the first section of the NDA.
The FDA may give a priority review designation to drugs that offer major advances in treatment, or provide a treatment where no adequate therapy exists. A priority review means that the goal for the FDA to review an application is six months, rather than the standard review of 10 months under current PDUFA guidelines. Under the new PDUFA agreement, these six- and 10-month review periods are measured from the “filing” date, rather than the receipt date for NDAs for new molecular entities, which typically adds approximately two months to the timeline for review and decision from the date of submission. Most products that are eligible for Fast Track Designation are also likely to be considered appropriate to receive a priority review.
In addition, products studied for their safety and effectiveness in treating serious or life-threatening illnesses and that provide meaningful therapeutic benefit over existing treatments may be eligible for accelerated approval and may be approved on the basis of adequate and well-controlled clinical trials that establish that the drug product has an effect (i) on a surrogate endpoint that is reasonably likely to predict clinical benefit or (ii) on a clinical endpoint that can be measured earlier than irreversible morbidity or mortality that is reasonably likely to predict an effect on irreversible morbidity or mortality or other clinical benefit, including taking into account the severity, rarity, or prevalence of the condition and the availability or lack of alternative treatments. As a condition of approval, the FDA may require a sponsor of a drug receiving accelerated approval to perform post-marketing studies to verify and describe the predicted effect on irreversible morbidity or mortality or other clinical endpoint, and the drug may be subject to accelerated withdrawal procedures.
Moreover, under the provisions of the FDASIA, a sponsor can request designation of a product candidate as a “breakthrough therapy.” A breakthrough therapy is defined as a drug that is intended, alone or in combination with one or more other drugs, to treat a serious or life-threatening disease or condition, and preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. Drugs designated as breakthrough therapies are also eligible for accelerated approval. The FDA must take certain actions, such as holding timely meetings and providing advice, intended to expedite the development and review of an application for approval of a breakthrough therapy.
Even if a product qualifies for one or more of these programs, the FDA may later decide that the product no longer meets the conditions for qualification or decide that the time period for FDA review or approval will not be shortened. We may explore some of these opportunities for our initial (or subsequent) product candidates, as appropriate.
Post-Approval Requirements
Drugs manufactured or distributed pursuant to FDA approvals are subject to pervasive and continuing regulation by the FDA, including, among other things, requirements relating to recordkeeping, periodic reporting, product sampling and distribution, advertising and promotion and reporting of adverse experiences with the product. After approval, most changes to the approved product, such as adding new indications or other labeling claims are subject to prior FDA review and approval. There also are continuing, annual user program fee requirements for any marketed products.
The FDA may impose a number of post-approval requirements as a condition of approval of an NDA. For example, the FDA may require post-marketing testing, including Phase IV clinical trials, and surveillance to assess further and monitor the product’s safety and effectiveness after commercialization.
In addition, drug manufacturers and other entities involved in the manufacture and distribution of approved drugs are required to register their establishments with the FDA and state agencies, and are subject to periodic unannounced inspections by the FDA and these state agencies for compliance with cGMP requirements. Changes to the manufacturing process are strictly regulated and often require prior FDA approval before being implemented. FDA regulations also require investigation and correction of any deviations from cGMP requirements and impose reporting and documentation requirements upon the sponsor and any third-party manufacturers that the sponsor may decide to use. Accordingly, manufacturers must continue to expend time, money, and effort in the area of production and quality control to maintain cGMP compliance.
Once an approval of a drug or medical device is granted, the FDA may withdraw the approval if compliance with regulatory requirements and standards is not maintained or if problems occur after the product reaches the market. Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may result in mandatory revisions to the approved labeling to add new safety information; imposition of post-market studies or clinical trials to assess new safety risks; or imposition of distribution or other restrictions under a REMS program. Other potential consequences include, among other things:
•restrictions on the marketing or manufacturing of the product, complete withdrawal of the product from the market or product recalls;
•fines, warning letters or holds on post-approval clinical trials;
•refusal of the FDA to approve pending NDAs or supplements to approved NDAs, or suspension or revocation of product approvals;
•product seizure or detention, or refusal to permit the import or export of products; or
•injunctions or the imposition of civil or criminal penalties.
The FDA strictly regulates marketing, labeling, advertising and promotion of products that are placed on the market. Drugs or devices may be promoted only for the approved indications and in accordance with the provisions of the approved label. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to have promoted off-label uses improperly may be subject to significant liability.
The Hatch-Waxman Amendments
The Drug Price Competition and Patent Term Restoration Act of 1984, known as the Hatch-Waxman Act, added two pathways for FDA drug approval. First, the Hatch-Waxman amendments to the FDCA authorized the FDA to approve an alternative type of NDA under Section 505(b)(2) of the FDCA. Section 505(b)(2) permits the filing of an NDA where at least some of the information required for approval comes from trials not conducted by or for the applicant and for which the applicant has not obtained a right of reference from the data owner. The applicant may rely upon the FDA’s findings of safety and efficacy for an approved product that acts as the “listed drug.” The FDA may also require 505(b)(2) applicants to perform additional studies or measurements to support the change from the listed drug. The FDA may then approve a new product candidate for all, or some, of the label indications for which the branded reference drug has been approved, as well as for any new indication sought by the 505(b)(2) applicant.
Second, the Hatch-Waxman amendments to the FDCA also established a statutory procedure for submission and FDA review and approval of abbreviated new drug applications (“ANDAs”) for generic versions of branded drugs previously approved by the FDA (such previously approved drugs are referred to as “listed drugs”). An ANDA is a comprehensive submission that contains, among other things, data and information pertaining to the active pharmaceutical ingredient, drug product formulation, specifications, and stability of the generic drug, as well as analytical methods, manufacturing process validation data and quality control procedures. Premarket applications for generic drugs are termed abbreviated because they generally do not include pre-clinical and clinical data to demonstrate safety and effectiveness. However, a generic manufacturer is typically required to conduct bioequivalence studies of its test product against the listed drug. The bioequivalence studies for orally administered, systemically available drug products assess the rate and extent to which the active pharmaceutical ingredient (the “API”) is absorbed into the bloodstream from the drug product and becomes available at the site of action. Bioequivalence is established when there is an absence of a significant difference in the rate and extent for absorption of the generic product and the listed drug. For some drugs, other means of demonstrating bioequivalence may be required by the FDA, especially where rate and/or extent of absorption are difficult or impossible to measure. The FDA will approve the generic product as suitable for an ANDA application if it finds that the generic product does not raise new questions of safety and effectiveness as compared to the innovator product. A product is not eligible for ANDA approval if the FDA determines that it is not bioequivalent to the referenced innovator drug, if it is intended for a different use, or if it is not subject to an approved Suitability Petition.
In seeking approval for a drug through an NDA, including a 505(b)(2) NDA, applicants are required to list with the FDA certain patents whose claims cover the applicant’s product. Upon approval of an NDA, each of the patents listed in the application for the drug is then published in the Orange Book. Any applicant who files an ANDA seeking approval of a generic equivalent version of a drug listed in the Orange Book or a 505(b)(2) NDA that references a drug listed in the Orange Book must certify to the FDA that (1) no patent information on the drug product that is the subject of the application has been submitted to the FDA; (2) such patent has expired; (3) the date on which such patent expires; or (4) such patent is invalid or will not be infringed upon by the manufacture, use, or sale of the drug product for which the application is submitted. This last certification is known as a paragraph IV certification. A notice of the paragraph IV certification must be provided to each owner of the patent that is the subject of the certification and to the holder of the approved NDA to which the ANDA or 505(b)(2) application refers. The applicant may also elect to submit a “section viii” statement certifying that its proposed label does not contain (or carves out) any language regarding the patented method-of-use rather than certify to a listed method-of-use patent.
If the referenced NDA holder and patent owners assert a patent challenge directed to one of the Orange Book-listed patents within 45 days of the receipt of the paragraph IV certification notice, the FDA is prohibited from approving the application until the earlier of 30 months from the receipt of the paragraph IV certification expiration of the patent, settlement of the lawsuit, or a decision in the infringement case that is favorable to the applicant. The ANDA or 505(b)(2) application also will not be approved until any applicable non-patent exclusivity listed in the Orange Book for the branded reference drug has expired.
Marketing Exclusivity
Market exclusivity provisions under the FDCA can delay the submission or the approval of certain marketing applications. The FDCA provides a five-year period of non-patent marketing exclusivity within the United States to the first applicant to obtain approval of an NDA for a new chemical entity. A drug is a new chemical entity if the FDA has not previously approved any other new drug containing the same active moiety, which is the molecule or ion responsible for the action of the drug substance. During the exclusivity period, the FDA may not approve or even accept for review an abbreviated new drug application, or ANDA, or a NDA submitted under Section 505(b)(2), or 505(b)(2) NDA, submitted by another company for another drug based on the same active moiety, regardless of whether the drug is intended for the same indication as the original innovative drug or for another indication, where the applicant does not own or have a legal right of reference to all the data required for approval. However, an application may be submitted after four years if it contains a certification of patent invalidity or non-infringement to one of the patents listed with the FDA by the innovator NDA holder. The FDCA alternatively provides three years of marketing exclusivity for an NDA, or supplement to an existing NDA if new clinical investigations, other than bioavailability studies, that were conducted or sponsored by the applicant are deemed by the FDA to be essential to the approval of the application, for example new indications, dosages or strengths of an existing drug. This three-year exclusivity covers only the modification for which the drug received approval on the basis of the new clinical investigations and does not prohibit the FDA from approving ANDAs or 505(b)(2) NDAs for drugs containing the active agent for the original indication or condition of use. Five-year and three-year exclusivity will not delay the submission or approval of a full NDA. However, an applicant submitting a full NDA would be required to conduct or obtain a right of reference to all of the pre-clinical studies and adequate and well-controlled clinical trials necessary to demonstrate safety and effectiveness. Pediatric exclusivity is another type of marketing exclusivity available in the United States. Pediatric exclusivity provides for an additional six months of marketing exclusivity attached to another period of exclusivity if a sponsor conducts clinical trials in children in response to a written request from the FDA. The issuance of a written request does not require the sponsor to undertake the described clinical trials. In addition, orphan drug exclusivity, as described above, may offer a seven-year period of marketing exclusivity, except in certain circumstances.
United States Coverage and Reimbursement
Significant uncertainty exists as to the coverage and reimbursement status of any therapeutic product candidate for which we may seek regulatory approval. Sales in the United States will depend in part on the availability of adequate financial coverage and reimbursement from third-party payors, which include government health programs such as Medicare, Medicaid, TRICARE, and the Veterans Administration, as well as managed care organizations and private health insurers. Prices at which we or our customers seek reimbursement for our initial or subsequent therapeutic product candidates can be subject to challenge, reduction, or denial by payors.
The process for determining whether a payor will provide coverage for a product is typically separate from the process for setting the reimbursement rate that the payor will pay for the product. A payor’s decision to provide coverage for a product does not imply that an adequate reimbursement rate will be available. Third-party payors are increasingly challenging the price and examining the medical necessity and cost-effectiveness of medical products and services, in addition to their safety and efficacy. In order to obtain coverage and reimbursement for any product that might be approved for marketing, we may need to conduct expensive pharmacoeconomic studies in order to demonstrate the medical necessity and cost-effectiveness of any products, which would be in addition to the costs expended to obtain regulatory approvals. Third-party payors may not consider our initial or subsequent product candidates to be medically necessary or cost-effective compared to other available therapies, or the rebate percentages required to secure favorable coverage may not yield an adequate margin over cost or may not enable us to maintain price levels sufficient to realize an appropriate return on our investment in drug development.
Healthcare Reform
In the United States and some foreign jurisdictions, there have been, and continue to be, several legislative and regulatory changes and proposed changes regarding the healthcare system that could prevent or delay marketing approval of drug product candidates, restrict or regulate post-approval activities, and affect the profitable sale of drug product candidates.
Among policy makers and payors in the United States and elsewhere, there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving quality, and/or expanding access. In the United States, the pharmaceutical industry has been a particular focus of these efforts and has been significantly affected by major legislative initiatives. In March 2010, the Affordable Care Act, formally known as the Patient Protection and Affordable Care Act (the “ACA”), was enacted by Congress and signed into law by the President. It substantially changed the methods by which healthcare is financed by both the government and private insurers, and significantly impacted the
United States pharmaceutical industry. The ACA, among other things: (i) increased the minimum Medicaid rebates owed by manufacturers under the Medicaid Drug Rebate Program and extended the rebate program to individuals enrolled in Medicaid-managed care organizations; (ii) established an annual, nondeductible fee on any entity that manufactures or imports certain specified branded prescription drugs and biologic agents apportioned among these entities according to their market share in some government healthcare programs; (iii) expanded the availability of lower pricing under the 340B drug pricing program by adding new entities to the program; (iv) increased the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate Program; (v) expanded the eligibility criteria for Medicaid programs; (vi) created a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research; and (vii) established a Center for Medicare & Medicaid Innovation to test innovative payment and service delivery models to lower Medicare and Medicaid spending, potentially including prescription drugs.
Some of the provisions of the ACA have yet to be implemented, and there have been judicial and Congressional challenges to certain aspects of the ACA. While Congress has not passed comprehensive repeal legislation, bills affecting the implementation of certain taxes under the ACA have been signed into law. The Tax Cuts and Jobs Act of 2017 includes a provision repealing, effective January 1, 2019, the tax-based shared responsibility payment imposed by the ACA on certain individuals who fail to maintain qualifying health coverage for all or part of a year that is commonly referred to as the “individual mandate.” Additionally, on January 22, 2018, former President Trump signed a continuing resolution on appropriations for fiscal year 2018 that delayed the implementation of certain ACA-mandated fees, including the so-called “Cadillac” tax on certain high-cost employer-sponsored insurance plans, the annual fee imposed on certain health insurance providers based on market share, and the medical device excise tax on non-exempt medical devices.
Other legislative changes have been proposed and adopted since the ACA was enacted, including aggregate reductions of Medicare payments to providers of two percent per fiscal year and reduced payments to several types of Medicare providers. Moreover, there has recently been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products, which has resulted in several Congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drug products. At the state level, legislatures have increasingly passed legislation and implemented regulations designed to control pharmaceutical product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing.
United States Healthcare Fraud and Abuse Laws and Compliance Requirements
Federal and state healthcare laws and regulations restrict business practices in the pharmaceutical industry. The United States laws that may affect our ability to operate include:
•the federal Anti-Kickback Statute, which prohibits, among other things, persons from soliciting, receiving, offering or paying remuneration, directly or indirectly, to induce, or in return for, the purchase or recommendation of an item or service reimbursable under a federal healthcare program, such as the Medicare and Medicaid programs;
•the federal civil and criminal false claims laws and civil monetary penalty laws, which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid or other third-party payors that are false or fraudulent;
•HIPAA, which created new federal criminal statutes that prohibit executing a scheme to defraud any healthcare benefit program and making false statements relating to healthcare matters;
•HIPAA, as amended by the federal Health Information Technology for Economic and Clinical Health Act and its implementing regulations, also imposes certain requirements relating to the privacy, security and transmission of individually identifiable health information;
•the federal Physician Payments Sunshine Act, which among other things, requires certain manufacturers of drugs, devices, and biologics that are reimbursable by a federal healthcare program to report annually to the United States Department of Health and Human Services information related to payments and other transfers of value to physicians and teaching hospitals, and ownership and investment interests held by physicians and their immediate family members; and
•similar federal laws and state law equivalents of each of the above federal laws.
Regulation Outside of the United States
To the extent that our initial or subsequent product candidates, if and when approved, are sold in a foreign country, we may be subject to similar foreign laws and regulations, which may include, for instance, applicable post-marketing requirements, including safety surveillance, anti-fraud and abuse laws and implementation of corporate compliance programs and reporting of payments or other transfers of value to healthcare professionals.
In order to market our future products in the European Economic Area (the “EEA”) and many other foreign jurisdictions, we must obtain separate regulatory approvals. More concretely, in the EEA, medicinal products can only be commercialized after obtaining a Marketing Authorization (an “MA”). There are two types of Marketing Authorizations:
•the Community MA, which is issued by the European Commission through the Centralized Procedure, based on the opinion of the Committee for Medicinal Products for Human Use of the European Medicines Agency (the “EMA”) and which is valid throughout the entire territory of the EEA. The Centralized Procedure is mandatory for certain types of products, such as biotechnology medicinal products, orphan medicinal products, advanced therapy products, and medicinal products containing a new active substance indicated for the treatment certain diseases, such as AIDS, cancer, neurodegenerative disorders, diabetes, and auto-immune and viral diseases. The Centralized Procedure is optional for products that contain a new active substance not yet authorized in the EEA, or for products that constitute a significant therapeutic, scientific, or technical innovation or that are in the interest of public health in the EU; and
•National MAs, which are issued by the competent authorities of the Member States of the EEA and only cover their respective territory, are available for products not falling within the mandatory scope of the Centralized Procedure. Where a product has already been authorized for marketing in a Member State of the EEA, a National MA can be recognized in another Member State through the Mutual Recognition Procedure. If the product has not received a National MA in any Member State at the time of application, it can be approved simultaneously in various Member States through the Decentralized Procedure.
Under the above-described procedures, before granting the MA, the EMA or the competent authorities of the Member States of the EEA make an assessment of the risk-benefit balance of the product on the basis of scientific criteria concerning its quality, safety and efficacy.
Data and Marketing Exclusivity
In the EEA, new products authorized for marketing, or reference products, qualify for eight years of data exclusivity and an additional two years of market exclusivity upon marketing authorization. The data exclusivity period prevents generic or biosimilar applicants from relying on the pre-clinical and clinical trial data contained in the dossier of the reference product when applying for a generic or biosimilar marketing authorization in the EU during a period of eight years from the date on which the reference product was first authorized in the EU. The market exclusivity period prevents a successful generic or biosimilar applicant from commercializing its product in the EU until 10 years have elapsed from the initial authorization of the reference product in the EU. The 10-year market exclusivity period can be extended to a maximum of 11 years if, during the first eight years of those 10 years, the marketing authorization holder obtains an authorization for one or more new therapeutic indications that, during the scientific evaluation prior to their authorization, are held to bring a significant clinical benefit in comparison with existing therapies. In Japan, medicinal products approved for administration to a patient via a new route of administration qualify for six years of market exclusivity.
Clinical Trials
Clinical trials of medicinal products in the European Union must be conducted in accordance with European Union and national regulations and the International Conference on Harmonization (the “ICH”) guidelines on GCPs. Additional GCP guidelines from the European Commission, focusing in particular on traceability, apply to clinical trials of advanced therapy medicinal products. If the sponsor of the clinical trial is not established within the European Union, it must appoint an entity within the European Union to act as its legal representative. The sponsor must purchase a clinical trial insurance policy and, in most EU countries, the sponsor is liable to provide “no fault” compensation to any study subject injured in the clinical trial.
Prior to commencing a clinical trial, the sponsor must obtain a clinical trial authorization from the competent authority, and a positive opinion from an IEC. The application for a clinical trial authorization must include, among other things, a copy of the trial protocol and an investigational medicinal product dossier that contains information about the manufacture and
quality of the medicinal product under investigation. Currently, clinical trial authorization applications must be submitted to the competent authority in each EU Member State in which the trial will be conducted. Under the new Clinical Trials Regulation (Regulation (EU) No 536/2014), which took effect on January 31, 2022, there will be a centralized application procedure where one national authority takes the lead in reviewing the application and the other national authorities have only a limited involvement. Any substantial changes to the trial protocol or other information submitted with the clinical trial applications must be notified to or approved by the relevant competent authorities and ethics committees. Medicines used in clinical trials must be manufactured in accordance with cGMP. Other national and European Union-wide regulatory requirements also apply.
Recycling Segment - Discontinued Operations
Our wholly-owned Recycling Subsidiaries in our Recycling segment included ARCA Recycling and ARCA Canada, which recycle major household appliances in North America by providing turnkey appliance recycling and replacement services for utilities and other sponsors of energy efficiency programs, and Connexx, which provides call center services for the recycling segment.
The ARCA business was disposed of on March 8, 2023. The business started in 1976 as a used appliance retailer that reconditioned old appliances to sell in their stores. Any old appliances that could not be sold in ARCA stores were sold to scrap metal processors. In the late 1980s, stricter environmental regulations began to affect the disposal of unwanted appliances and ARCA was no longer able to take appliances that contained hazardous components to scrap metal processors. At that time, ARCA began to develop systems and equipment to remove the harmful materials so that metal processors would accept the appliance shells for processing. ARCA then offered their services for disposing of appliances in an environmentally sound manner to appliance manufacturers and retailers, waste hauling companies, rental property managers, local governments, and the public. In 1989, ARCA began contracting with electric utility companies to provide turnkey appliance recycling services to support their energy conservation efforts. Since that time, through March 8, 2023, ARCA provided services to approximately 400 utilities and other providers of energy efficiency programs throughout North America.
Through March 8, 2023, when we disposed of our recycling business, we had contracts to recycle, or to replace and recycle, major household appliances for approximately 100 utilities and other providers of energy efficiency services across North America. ARCA operated 17 recycling centers in the United States and Canada to process and recycle old appliances according to all federal, state, provincial, and local rules and regulations. We used United States Environmental Protection Agency (the “EPA”) Responsible Appliance Disposal (“RAD”) Program-compliant methods to remove and manage hazardous components and materials properly, including CFC refrigerants, mercury, polyurethane foam insulation, and recyclable materials, such as ferrous and nonferrous metals, plastics, and glass. During our operations of the recycling business, all of our facilities complied with licensing and permitting requirements, and employees who process appliances receive extensive safety and hazardous materials training.
Disposition of our Recycling Business
On March 19, 2023, the Company entered into a Stock Purchase Agreement (the “Recycling Purchase Agreement”) with VM7 Corporation (“VM7”), under which it agreed to acquire all of the outstanding equity interests of the Recycling Subsidiaries, consisting of: (a) ARCA Recycling, (b) ARCA Canada, and (c) Connexx. The principal of VM7 is Virland A. Johnson, our Chief Financial Officer. The sale of all of the outstanding equity interests of the Recycling Subsidiaries to VM7 under the Recycling Purchase Agreement (the “Disposition Transaction”) was consummated simultaneously with the execution of the Recycling Purchase Agreement. Our Board of Directors unanimously approved the Recycling Purchase Agreement and the Disposition Transaction.
The economic aspects of the Disposition Transaction are: (i) we reduced the liabilities on our consolidated balance sheets by approximately $17.6 million (excluding those related to the California Business Fee and Tax Division, as discussed below); (ii) we will receive not less than $24.0 million in aggregate monthly payments from VM7, which payments are subject to potential increase due to the Recycling Subsidiaries’ future performance; and (iii) during the next five years, we may request that VM7 prepay aggregate monthly payments in the aggregate amount of $1 million. We also received one thousand dollars for the equity of each of the Recycling Subsidiaries at the closing. Each monthly payment is to be the greater of (a) $140,000 (or $100,000 for each January and February during the 15-year payment period) or (b) a monthly percentage-based payment, which is an amount calculated as follows: (i) 5% of the Recycling Subsidiaries’ aggregate gross revenues up to $2,000,000 for the relevant month, plus (ii) 4% of the Recycling Subsidiaries’ aggregate gross revenues between $2,000,000 and $3,000,000 for the relevant month, plus (iii) 3% of the Recycling Subsidiaries aggregate gross revenues over $3,000,000 for the relevant month. VM7 will receive credit toward the payment of the first monthly payment
(March of 2023) for any payments, distributions, or cash dividends paid by any of the Recycling Subsidiaries to the Company on or after March 19, 2023.
VM7 may prepay, at any time and in total, the estimated aggregate of the future monthly payments. That amount will be an amount equal to the then-present value of the estimated future monthly payments, discounted at the rate of 5% per annum (the “Prepayment Price”). Furthermore, VM7 will be required to pay the Prepayment Price upon the earliest of (i) Mr. Johnson holding less than 75% of the capital stock of VM7, (ii) VM7 selling substantially all of its assets, (iii) VM7 holding less than 50% of the capital stock of the Recycling Subsidiaries, or (iv) the Recycling Subsidiaries selling substantially all of their respective assets. Upon payment of the Prepayment Price, VM7 will have no further purchase price payment obligations to the Company.
Additional terms of the Disposition Transaction are: (i) we have the right to appoint one member of VM7’s board of directors until the sooner of VM7 having paid the Prepayment Price or having tendered all of the monthly payments; (ii) Mr. Johnson’s annual salary as Chief Executive Officer of VM7 shall be $400,000, prorated, for the remainder of the 2023 calendar year, and then adjusted annually to an amount equal to 1% of the Recycling Subsidiaries’ aggregate gross revenues, until the sooner of VM7 having paid the Prepayment Price or having tendered all of the monthly payments; and (iii) we will receive additional payments from VM7 (that are not related to the on-going monthly payments) that relate to certain taxing agency issues. Upon settlement of the continuing dispute between ARCA Recycling and the California Business Fee and Tax Division (as to which settlement, there can be no assurance), ARCA Recycling will pay to us 50% of the amount of the reduction between the current assessment and any such settlement. The payment will be memorialized by a three-year promissory note with interest at five percent per annum. The first payment under the note will be on the last day of VM7’s fiscal year in which the settlement occurs and the remaining payments each year thereafter. If ARCA Recycling receives a refund from the agency for payments previously made, it shall pay to us an amount equivalent to 25% of such refund after reduction for the legal fees payable to counsel for this proceeding. ARCA Recycling and Connexx are due to receive from the Internal Revenue Service two payments in the aggregate amount of approximately $931,000 in connection with the Employee Retention Credit provisions of the Coronavirus Aid, Relief, and Economic Security Act and the Taxpayer Certainty and Disaster Tax Relief Act of 2020. Those payments are to be tendered to us within 10 days of receipt by ARCA Recycling or Connexx.
To secure VM7’s obligations under the Recycling Purchase Agreement and pursuant to a Stock and Membership Interests Pledge Agreement dated March 19, 2023 (the “Pledge Agreement”), Mr. Johnson pledged to us all of the capital stock in VM7 (“VM7’s Capital Stock”) and VM7 pledged to us all of the equity interests of the Recycling Subsidiaries (the “Subject Securities”). Under the terms of the Pledge Agreement, upon an Event of Default (as defined in the Pledge Agreement), among other remedies in our favor, we may foreclose on any or all of VM7’s Capital Stock and the Subject Securities. We may also cause the ownership of VM7’s Capital Stock and of the Subject Securities to be transferred to us automatically, pursuant to an irrevocable transfer entered in our favor, as referenced in the Pledge Agreement. In the event of an automatic transfer, all of the monthly payments previously made by VM7 pursuant to the terms of the Recycling Purchase Agreement will then be characterized as contributions to the capital of the Company without dilution of the Company’s capital stock.
The parties have made customary representations, warranties, covenants, and indemnities in connection with the Disposition Transaction.
The Recycling Purchase Agreement contains certain representations and warranties that the parties made to each other as of the date of the Recycling Purchase Agreement or such other date as explicitly referenced therein. The representations and warranties were made solely for purposes of the Recycling Purchase Agreement and (i) are subject to limitations agreed by the parties in negotiating the terms and conditions thereof, (ii) may not be accurate or complete as of any specified date, (iii) will be qualified by the underlying disclosure schedules, (iv) may be subject to a contractual standard of materiality different from those generally applicable to investors, and (v) may have been used for the purpose of allocating risk among the parties thereto, rather than for establishing any matters as facts. Information concerning the subject matter of the representations and warranties may change after March 8, 2023, and subsequent information may or may not be fully reflected in ALT5 Sigma Corporation’s public disclosures. For the foregoing reasons, the representations and warranties contained in the Recycling Purchase Agreement should not be relied upon as statements of factual information.
Subsequent to the closing of the Disposition Transaction, VM7 determined that, after expending significant amounts of time and resources, it was unable to obtain sufficient equity or debt financing to continue the operations of the Recycling Subsidiaries. Accordingly, we were advised that the operations of the Recycling Subsidiaries were wound down and, ultimately, ceased. Because we did not receive all of the economic benefits of the Disposition Transaction and understand
that we will not receive any future benefits of the Disposition Transaction, we determined to fully impair the approximately $5.3 million carrying value of the Disposition Transaction on our balance sheet. We also determined not to exercise any of our remedies under the Recycling Purchase Agreement so that we could maintain our focus on our clinical-stage biopharmaceutical activities.
Corporate and Other
Our corporate and other segment consists of certain corporate general and administrative costs.
Employees
As of December 28, 2024, the Company had 10 employees, all of whom were full-time.

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ITEM 1A. RISK FACTORS
ITEM 1A. RISK FACTORS
Index to Risk Factors
Section
Page Number
Risks Relating to Our Business Generally
Risks Relating to our Fintech Segment
Risks Relating to Our Biotechnology Segment
General Risk Factors
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 in this Form 10-K 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 or result in our stock being delisted.
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. In addition, 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 at January 1, 2022. Specifically, management noted the following material weaknesses in internal control when conducting their evaluation of internal control as of January 1, 2022: (1) insufficient information technology general controls and segregation of duties. It was noted that people who were negotiating a contract were also involved in approving invoices without proper oversight. Additional controls and procedures are necessary and are being implemented to have checks and balances on significant transactions and governance with those charged with governance authority; (2) inadequate control design or lack of sufficient controls over significant accounting processes; the cutoff and reconciliation procedures were not effective with 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. In addition, contract-to-invoice reconciliation was not effective with certain transportation service providers. As part of its remediation plan, 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 if and as our business grows. To effectively manage our Company today and this anticipated complexity, we need to remediate these material weaknesses and continue to improve our operational, financial, and management controls and our reporting systems and procedures. 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, either of which would harm our stock price.
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 the 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, as provided in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Application of Critical Accounting Policies” in Part II, Item 7 of this Annual Report on Form 10-K. 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, valuation of strategic investments, evaluation of tax positions, and evaluation of legal and other contingencies. Our business, operating results, and financial condition could be adversely affected if our assumptions change or if actual circumstances differ from those in our assumptions, which could cause our operating results to differ from the expectations of analysts and investors, resulting in a decline in the trading price of our Common Stock.
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.
Any failure to implement and maintain effective internal control over financial reporting could also adversely affect the results of periodic management evaluations and annual independent registered public accounting firm attestation reports regarding the effectiveness of our internal control over financial reporting that are required to be included in our periodic reports filed with the SEC. Ineffective disclosure controls and procedures or internal control over financial reporting may adversely affect investor confidence in us 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.
Adverse economic conditions could adversely affect our business.
Our performance is subject to general economic conditions, and their impact on the crypto asset markets and our customers. The United States and other key international economies have experienced cyclical downturns from time to time in which economic activity declined resulting in lower consumption rates, restricted credit, reduced profitability, weaknesses in financial markets, bankruptcies, and overall uncertainty with respect to the economy. Adverse general economic conditions have impacted in the past, and may impact in the future, the crypto-economy, although 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, instability in the global banking system, volatility and disruptions in the capital and credit markets, and other events beyond our control. Geopolitical developments, such as trade and tariff wars and foreign exchange limitations, can also increase the severity and levels of unpredictability globally and increase the volatility of global financial and crypto asset markets. For example, in the past the capital and credit markets have experienced extreme volatility and disruptions, resulting in steep declines in the value of crypto assets. To the extent general economic conditions and crypto assets markets materially deteriorate or decline for a prolonged period, our ability to generate revenue and to 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 following any such deterioration, there is no guarantee that the crypto-economy would similarly improve.
Actual events involving limited liquidity, defaults, non-performance, or other adverse developments that affect financial institutions, transactional counterparties or other companies in the financial services industry, or the financial services industry generally, or concerns or rumors about any such events or other similar risks, have in the past and may in the future lead to market-wide liquidity problems.
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. In the event of a downgrade of our credit rating, our ability to raise additional financing may be adversely affected and any future debt offerings or credit arrangements we propose to enter into may be on less favorable terms or terms that may not be acceptable to us. In addition, even if debt financing is available, the cost of additional financing may be significantly higher than our current debt. 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. Furthermore, we have authorized the issuance of “blank check” preferred stock and Common Stock that our board of directors could use to, among other things, issue shares of our capital stock in the form of blockchain tokens, implement a stockholder rights plan, or issue other shares of preferred stock or Common Stock. We may issue shares of capital stock, including in the form of blockchain tokens, to our 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. 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. In addition, a slowdown or other sustained adverse downturn in the general economic or crypto asset markets could adversely affect our business and the value of our Common Stock. Because our decision to raise capital in the future will depend on numerous considerations, including factors beyond our control, we cannot predict or estimate the amount, timing, or nature of any future issuances of securities. 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, and could have an adverse effect on our business, operating results, and financial condition. Our business operations are subject to interruption by natural disasters, fire, power shortages, and other events beyond our control. In addition, our global operations expose us to risks associated with public health crises, such as pandemics and epidemics, which could harm our business and cause our operating results to suffer. For example, the COVID-19 pandemic and the related precautionary measures that we adopted have in the past resulted, and could in the future result, in difficulties or changes to our customer support, or create operational or other challenges, any of which could adversely affect our business, operating results, and financial condition. Further, acts of terrorism, labor activism or unrest, and other geopolitical unrest, including ongoing regional conflicts around the world, could cause disruptions in our business or the businesses of our partners or the economy as a whole. In the event of a natural disaster, including a major earthquake, blizzard, or hurricane, or a 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. Additionally, all the aforementioned risks may be further increased if we do not implement a disaster recovery plan or our partners’ disaster recovery plans prove to be inadequate. To the extent natural disasters or other 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.
Risks Relating to our Fintech Segment
Our operating results have and will significantly fluctuate, including due to the highly volatile nature of crypto.
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;
•changes in the legislative or regulatory environment, or actions by Common Stock 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, including investments we make in the development of products and services;
•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. Therefore, our operating results could fluctuate significantly as a result of changes in the demand for our subscription and service offerings, in interest rates, and to our ongoing relationships with third parties.
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. Quarterly and annual expenses reflected in our financial statements may be significantly different from historical or projected rates. 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 and the price of our Common Stock could decline.
We generate a large portion of our total fintech (and corporate) revenue from transaction fees on our platform. Transaction revenue is based on transaction fees. Such revenue has grown over time. Declines in the volume of crypto asset transactions, among other reasons, may result in lower total revenue to us.
The price of crypto assets and associated demand for buying, selling, and trading crypto assets and conversions back and forth with fiat have historically been subject to significant volatility. If the volume of such transactions declines in the future, our ability to generate revenue, which could adversely affect our business, operating results, and financial condition and cause the price of our Common Stock to decline. 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, including, but not limited to, as a result of actions taken by or developments of other companies in 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 assets worldwide, if at all;
•decreased user and investor confidence in crypto assets and crypto platforms;
•negative publicity and events relating to the crypto-economy;
•unpredictable social media coverage or “trending” of, or other rumors and market speculation regarding, crypto assets;
•the ability for crypto assets to meet user and investor demands;
•the functionality and utility of crypto assets and their associated ecosystems and networks, including crypto assets designed for use in various applications;
•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, judgments, or settlements 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, including vulnerabilities against hacks and scalability;
•speed and fees associated with processing crypto asset transactions, including on the underlying blockchain networks and on crypto platforms;
•financial strength of market participants;
•the availability and cost of funding and capital;
•the liquidity and credit risk of other crypto platforms and other participants of the crypto-economy;
•interruptions or temporary suspensions or other compulsory restrictions in products or services from or failures of major crypto platforms;
•availability of an active derivatives market for various crypto assets;
•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 activities. In the event that the price of crypto assets or the demand for trading crypto assets decline, our business, operating results, and financial condition would be adversely affected and the price of our Common Stock could decline.
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. As a result, 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 customers’ 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;
•result in significant compensation or contractual penalties payable by us to our customers or third parties as a result of losses to them or claims by them; and
•adversely affect our business, operating results, and financial condition.
Further, any actual or perceived breach or cybersecurity attack directed at other financial institutions or crypto companies, whether or not we are directly impacted, could lead to a general loss of customer confidence in the crypto-economy or in the use of technology to conduct financial transactions, which could negatively impact us, including the market perception of the effectiveness of our security measures and technology infrastructure.
An increasing number of organizations, including large merchants, businesses, technology companies, and financial institutions, as well as government institutions, have disclosed breaches of their information security systems, some of which have involved sophisticated and highly targeted attacks, including on their websites, mobile applications, and infrastructure.
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 (including customers’ personal data and crypto assets), 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. These attacks may occur on our systems or those of our third-party service providers or partners. Certain types of cyberattacks could harm us even if our systems are left undisturbed. For example, attacks may be designed to deceive employees and service providers into releasing control of our systems to a hacker, while others may aim to introduce computer viruses or malware into our systems with a view to stealing confidential or proprietary data. Additionally, certain threats are designed to remain dormant or undetectable until launched against a target, and we may not be able to implement adequate preventative measures.
Although we have developed systems and processes designed to protect the data we manage, prevent data loss, and other security breaches, effectively to respond to known and potential risks, and expect to continue to expend significant resources to bolster these protections, there can be no assurance that these security measures will provide absolute security or prevent breaches or attacks. We may experience in the future, breaches of our security measures due to human error, malfeasance, insider threats, system errors or vulnerabilities, or other irregularities. Unauthorized parties may attempt to gain access to our systems and facilities, as well as those of our customers, partners, and third-party service providers, through various means, including hacking, social engineering, phishing, and attempting to fraudulently induce individuals (including employees, service providers, and our customers) into disclosing usernames, passwords, payment card information, or other sensitive information, which may in turn be used to access our information technology systems and customers’ crypto assets. Threats can come from a variety of sources, including criminal hackers, hacktivists, state-sponsored intrusions, industrial espionage, and insiders. Certain threat actors may be supported by significant financial and technological resources, making them even more sophisticated and difficult to detect. If we acquire a third-party entity, as to which we do not have any current plans, r companies that expose us to unexpected security risks or increase costs to improve the security posture of the acquired company. Further, there has been an increase in such threat actor activities as a result of the increased prevalence of hybrid and remote working arrangements in recent years. As a result, our costs and the resources we devote to protecting against these advanced threats and their consequences may continue to increase over time.
Outages and disruptions of our platform, including any caused by cyberattacks, may harm our reputation, business, operating results, and financial condition.
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, federal government contractors, 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 (including payment processing and settlement 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, generative artificial intelligence (“AI”) 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 US. federal, state, and local and international jurisdictions. These legal and regulatory regimes, including the laws, rules, and regulations thereunder, evolve frequently and may be modified, interpreted, and applied in an inconsistent manner from one jurisdiction to another, and may conflict with one another. Moreover, the complexity and evolving nature of our business and the significant uncertainty surrounding the regulation of the crypto-economy requires us to exercise our judgment as to whether certain laws, rules, and regulations apply to us, and it is possible that governmental bodies and regulators may disagree with our conclusions. To the extent we have not complied with (or are deemed not to have complied with) such laws, rules, and regulations, we could be subject to significant fines, revocation of licenses, limitations on or temporary or permanent suspensions of our products and services, reputational harm, and other regulatory consequences, each of which may be significant and could adversely affect our business, operating results, and financial condition.
Governmental and regulatory bodies, including in the United States, may introduce new policies, laws, and regulations relating to crypto assets and the crypto-economy generally, and crypto asset platforms in particular. Other companies’ failures of risk management and other control functions could contribute to stricter oversight of crypto asset platforms and
the crypto-economy. Furthermore, new interpretations of existing laws and regulations may be issued by such bodies or the judiciary, which may adversely impact the development of the crypto-economy as a whole and our legal and regulatory status in particular by changing how we operate our business, how our products and services are regulated, and what products or services we and our competitors can offer, requiring changes to our compliance and risk mitigation measures, imposing new licensing requirements, or imposing a total ban on certain crypto asset transactions, as has occurred in certain jurisdictions in the past. 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. Additionally, under recommendations from the Financial Crimes Enforcement Network (“FinCEN”), and the Financial Action Task Force, the United States and several foreign jurisdictions have or are likely to impose the Funds Travel Rule and the Funds Transfer Rule (commonly referred to collectively as the Travel Rule) on financial service providers in the crypto-economy. We may face substantial costs to operationalize and comply with the Travel Rule and may be further subject to administrative sanctions for technical violations or customer attrition if the user experience suffers as a result. There are substantial uncertainties regarding the scope of these requirements in practice, and we may face substantial costs to operationalize and comply with these rules.
Moreover, we offer and may in the future offer products and services whose functionality or value depends in part on our management of token transaction smart contracts, liquid staking, asset tracking, or other applications that provide novel forms of customer engagement and interaction delivered via blockchain protocols. We may also offer products and services whose functionality or value depends on our ability to develop, integrate, or otherwise interact with such applications within the bounds of our legal and compliance obligations. The legal and regulatory landscape for such products, including the law governing the rights and obligations between and among smart contract developers and users and the extent to which such relationships entail regulated activity is uncertain and rapidly evolving. Our interaction with those applications, and the interaction of other blockchain users with any smart contracts or assets we may generate or control, could present legal, operational, reputational, and regulatory risks for our business.
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, many of which have broad discretion to audit and examine our business. We are periodically subject to audits and examinations by these regulatory authorities. As a result of findings from these audits and examinations, regulators may in the future require us to take certain actions, including amending, updating, or revising our compliance measures from time to time, limiting the kinds of customers that we provide services to, changing, terminating, or delaying our licenses and the introduction of new products or services, and undertaking further external audit or being subject to further regulatory scrutiny, including investigations and inquiries. We may in the future receive examination reports citing violations of rules and regulations, inadequacies in existing compliance programs, and requiring us to initiate or enhance certain practices with respect to our compliance program, including due diligence, monitoring, training, reporting, and recordkeeping. Implementing appropriate measures to properly remediate these examination findings may require us to incur significant costs, and if we fail to remediate properly any of these examination findings, we could face civil litigation, significant fines, damage awards, forced removal of certain employees including members of our executive team, barring of certain employees from participating in our business in whole or in part, revocation of existing licenses, limitations on existing and new products and services, reputational harm, negative impact to our existing relationships with regulators, exposure to criminal liability, or other regulatory consequences. Further, we believe increasingly strict legal and regulatory requirements and additional regulatory investigations and enforcement, any of which could occur or intensify, may continue to result in changes to our business, as well as increased costs, and supervision and examination for ourselves, our agents, and service providers. Moreover, new laws, regulations, or interpretations may result in additional litigation, regulatory investigations, and enforcement or other actions, including preventing or delaying us from offering certain products or services offered by our competitors or could impact how we offer such products and 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 and brand and our business, operating results, and financial condition.
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. Our platform, the
ability of our customers to trade, and our ability to operate at a high level, are dependent on our ability to access the blockchain networks underlying the supported crypto assets, for which access is dependent on our systems’ ability to access the internet. Further, the successful and continued operations of such blockchain networks will depend on a network of computers, miners, or validators, and their continued operations, all of which may be impacted by service interruptions.
The systems of our third-party service providers and certain crypto asset and blockchain networks have experienced from time to time, 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, break-ins, sabotage, human error, vandalism, 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. In addition, extraordinary trading volumes or site usage could cause our computer systems to operate at an unacceptably slow speed or even fail.
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 customers’ 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. Further, when these disruptions occur, we have in the past, and may in the future, fulfill customer transactions using inventory to prevent adverse user impact and limit detrimental impact to our operating results. A prolonged interruption in the availability or reduction in the availability, speed, or functionality of our products and services could harm our business. Significant or persistent interruptions in our services could cause current or potential customers or partners to believe that our systems are unreliable, leading them to switch to our competitors or to avoid or reduce the use of our products and services, and could permanently harm our reputation and brands. Moreover, to the extent that any system failure or similar event results in damages to our customers or their business partners, these customers or partners could seek significant compensation or contractual penalties from us for their losses, and those claims, even if unsuccessful, would likely be time-consuming and costly for us to address. 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.
Because we are a regulated financial institution in certain jurisdictions, interruptions have resulted and in the future may result in regulatory scrutiny, and significant or persistent interruptions could lead to significant fines and penalties, and mandatory and costly changes to our business practices, and ultimately could cause us to lose existing licenses or banking relationships that we need to operate or prevent or delay us from obtaining additional licenses that may be required for our business.
In addition, we are continually improving and upgrading our information systems and technologies. Implementation of new systems and technologies is complex, expensive, time-consuming, and may not be successful. If we fail to timely and successfully implement new information systems and technologies, or improvements or upgrades to existing information systems and technologies, or if such systems and technologies do not operate as intended, it could adversely affect our internal controls (including internal controls over financial reporting), and 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 continue to do so, that we will be able to retain our current customers or attract new customers, or keep our customers engaged. Any number of factors can negatively affect customer retention, growth, and engagement, including if:
•customers increasingly engage with competing products and services, including products and services that we are unable to offer due to regulatory reasons;
•we fail to introduce new and improved products and services, or if we introduce new products or services that are not favorably received;
•we fail to support new and in-demand crypto assets or if we elect to support crypto assets with negative reputations;
•there are changes in sentiment about the quality or usefulness of our products and services or concerns related to privacy, security, fiat pegging, or other factors;
•there are adverse changes in our products and services that are mandated by legislation, regulatory authorities, or litigation;
•customers perceive the crypto assets on our platform to be bad investments, or experience significant losses in investments made on our platform;
•technical or other problems prevent us from delivering our products and services with the speed, functionality, security, and reliability that our customers expect;
•cybersecurity incidents, employee or service provider misconduct, or other unforeseen activities cause losses to us or our customers, including losses to assets held by us on behalf of our customers;
•modifications to our pricing model or modifications by competitors to their pricing models;
•we fail to provide adequate customer service;
•regulatory and governmental bodies in countries that we target for expansion express negative views towards crypto asset trading platforms and, more broadly, the crypto-economy; or
•we or other companies or high-profile figures in our industry are the subject of adverse media reports or other negative publicity.
From time to time, certain of these factors may negatively affect customer retention, growth, and engagement to varying degrees. If we are unable to maintain or increase our customer base and customer engagement, our revenue and financial results may be adversely affected. Any decrease in user retention, growth, or engagement could render our products and services less attractive to customers and lead to a decrease in revenue, and our business, operating results, and financial condition could be adversely affected. If our customer growth rate slows or declines, we will become increasingly dependent on our ability to maintain or increase levels of user engagement and monetization in order to drive growth of revenue.
Our operating expenses may increase in the future and we may not be successful in increasing our revenue to sufficiently offset these higher expenses, which could impact our ability to achieve profitability or positive cash flow from operations on a consistent basis and cause our business, operating results, and financial condition to be adversely affected.
Our operating expenses may increase in the future as we continue to grow our business. While we consistently evaluate opportunities to drive efficiency, we cannot guarantee that these efforts will be successful or that we will not need to accelerate operating expenditures in the future. Our operations may prove more expensive than we currently anticipate, and we may not succeed in increasing our net revenue sufficiently to offset these higher expenses. Additionally, our revenue growth may be negatively impacted by, among other things, reduced demand for our offerings, increased competition, adverse macroeconomic conditions, any decrease in the growth or size of the crypto-economy, regulatory uncertainty or scrutiny, changes that impact our ability to offer certain products or services, or failure of new products and services to gain market adoption. As a result, we cannot be certain that we will be able to achieve profitability or achieve positive operating cash flow on any quarterly or annual basis. If we are unable to effectively manage these risks and difficulties as we encounter them, our business, operating results, and financial condition may suffer.
If we do not effectively manage our growth, including by maintaining and improving our systems and processes, our business, operating results, and financial condition could be adversely affected.
We have experienced, and may experience in the future, periods of significant growth. To manage and capitalize on our growth periods effectively, we will need to manage headcount, capital, and processes efficiently, while making investments, such as expanding our information technology and financial, operating, and administrative systems and controls, and such initiatives could strain our resources. We could experience operating difficulties in managing our business as it expands across numerous jurisdictions, including difficulties in hiring, training, managing, and retaining a
remote and evolving employee base. If we do not adapt or scale to meet these evolving challenges, we may experience erosion to our brand, the quality of our products and services may suffer, and our Company’s culture may be harmed. Moreover, the failure of our systems and processes could undermine our ability to provide accurate, timely, and reliable reports on our financial and operating results, including the financial statements provided herein, and could impact the effectiveness of our internal controls over financial reporting. In addition, our systems and processes may not prevent or detect all errors, omissions, or fraud. Any of the foregoing operational failures could lead to noncompliance with laws and regulations, loss of operating licenses or other authorizations, or loss of bank relationships that could substantially impair or even suspend company operations.
Successful implementation of our growth strategy will also require significant expenditures possibly prior to the generation of any substantial associated revenue and we cannot guarantee that these increased investments will result in corresponding and offsetting revenue growth. Because we have a limited history operating our business at its current scale, it is difficult to evaluate our current business and future prospects, including our ability to plan for and model future growth. Our limited operating experience at this scale, combined with the rapidly evolving and volatile nature of the cryptoasset market in which we operate, and other economic factors beyond our control, reduces our ability to accurately forecast quarterly or annual revenue accurately.
Due to our limited fintech operating history, it may be difficult to evaluate our business and future prospects, and we may not be able to achieve or maintain profitability in any given period.
We acquired our crypto processing segment in Spring of 2024 with the acquisition of our operating subsidiary and since then our business model has continued to evolve. Our net revenue has significantly grown since that acquisition; but, there is no assurance that growth will continue in future periods and you should not rely on growth of our revenue in any given prior quarterly or annual period as an indication of our future performance. If our net revenue were to decline significantly for any extended period of time, our business, operating results, and financial condition could be adversely affected. Our limited operating history and the volatile nature of our business make it difficult to evaluate our current business and our future prospects. We have encountered and will continue to encounter risks and difficulties as described in this section. If we do not manage these risks successfully, our business, operating results, and financial condition could be adversely affected.
Any acquisitions and investments that we make could require significant management attention, disrupt our business, result in dilution to our stockholders, and could adversely affect our business, operating results, and financial condition.
As part of our business strategy, we routinely conduct discussions and evaluate opportunities for possible acquisitions, strategic investments, entries into new businesses, joint ventures, and other transactions. We have made, and may make, acquisitions of and investments in, among other things, specialized employees and complementary companies, products, services, licenses, or technologies. In the future, the pace and scale of our acquisitions may increase and may include larger acquisitions than we have done historically. In the future, we may not be able to find other suitable acquisition candidates, and we may not be able to complete acquisitions on favorable terms, if at all. In some cases, the costs of such acquisitions may be substantial, and there is no assurance that we will receive a favorable return on investment for our acquisitions. Our acquisitions may not achieve our goals, and any future acquisitions we complete could be viewed negatively by customers, developers, or investors. In addition, if we fail to successfully close or integrate any acquisitions, or integrate the products or technologies associated with such acquisitions into our Company, our business, operating results, and financial condition could be adversely affected. Our ability to acquire and integrate companies, products, services, licenses, employees, or technologies in a successful manner is unproven. Any integration process may require significant time and resources, and we may not be able to manage the process successfully, including successfully securing regulatory approvals which may be required to close the transaction and to continue to operate the target firm’s business or products in a manner that is useful to us. We may not successfully evaluate or utilize the acquired products, services, technology, or personnel, or accurately forecast the financial impact of an acquisition transaction, including accounting charges. We may have to pay cash, incur debt, or issue equity securities to pay for any such acquisition, which could adversely affect our business, operating results, and financial condition. The sale of equity or issuance of debt to finance any such acquisitions could result in dilution to our stockholders, which, depending on the size of the acquisition, may be significant. The incurrence of indebtedness would result in increased fixed obligations and could also include covenants or other restrictions that would impede our ability to manage our operations.
If we fail to develop, maintain, and enhance our brand and reputation, our business, operating results, and financial condition could be adversely affected.
Our brand and reputation are key assets and a competitive advantage. Maintaining, protecting, and enhancing our brand depends largely on the success of our marketing efforts, ability to provide consistent, high-quality, and secure products, services, features, and support, and our ability to successfully secure, maintain, and defend our rights to use the ALT5 and ALT5 Sigma branding. We believe that the importance of our brand will increase as competition further intensifies. Our brand and reputation could be harmed if we fail to achieve these objectives or if our public image were to be tarnished by negative publicity, unexpected events, or actions by third parties. Unfavorable publicity regarding, for example, our product changes, product quality, litigation or regulatory activity, privacy and data security practices, terms of service, employment matters, the use of our products or services for illicit or objectionable ends, the actions of our customers, or the actions of other companies that provide similar services to ours, has in the past, and could in the future, adversely affect our reputation. Moreover, to the extent that we acquire a company and maintain that acquired company’s separate brand, we could experience brand dilution or fail to retain positive impressions of our own brand to the extent such impressions are instead attributed to the acquired company’s brand. Such negative publicity also could have an adverse effect on the size and engagement of our customers and could result in decreased revenue, which could adversely affect our business, operating results, and financial condition.
Internal key business metrics and other estimates are subject to inherent challenges in measurement and change as our business evolves, and our business, operating results, and financial condition could be adversely affected by real or perceived inaccuracies in those metrics or any changes in metrics we disclose.
We regularly review our internal key business metrics to evaluate our business, measure our performance, identify trends affecting our business, and make strategic decisions. These internal key business metrics are calculated using internal company data and have not been validated by an independent third party. While these numbers are based on what we believe to be reasonable estimates for the applicable period of measurement at the time of reporting, there are inherent challenges in such measurements. If we fail to maintain an effective analytics platform, our internal key business metrics calculations may be inaccurate, and we may not be able to identify those inaccuracies. Additionally, we may in the future calculate certain internal key business metrics using third-party data. While we believe the third-party data we may use in the future will be reliable, we may not in the future independently verify the accuracy or completeness of the data contained in such sources and there can be no assurance that such data is free of error. Any inaccuracy in the third-party data we use could cause us to overstate or understate our internal key business metrics. We regularly review our processes for calculating these metrics, and from time to time we have made adjustments that we believe may improve their accuracy.
Our platform may be exploited to facilitate illegal activity such as fraud, money laundering, gambling, tax evasion, and scams. If our platform is used to further such illegal activities, our business, operating results, and financial condition could be adversely affected.
Our platform may be exploited to facilitate illegal activity such as fraud, money laundering, gambling, tax evasion, and scams. We or our partners may be specifically targeted by individuals seeking to conduct fraudulent transfers, and it may be difficult or impossible for us to detect and avoid such transactions in certain circumstances. The use of our platform for illegal or improper purposes could subject us to claims, individual and class action lawsuits, and government and regulatory investigations, prosecutions, enforcement actions, inquiries, or requests that could result in liability and reputational harm for us. Moreover, certain activities that may be legal in one jurisdiction may be illegal in another jurisdiction, and certain activities that are at one time legal may in the future be deemed illegal in the same jurisdiction. As a result, there is significant uncertainty and cost associated with detecting and monitoring transactions for compliance with local laws. In the event that a customer is found responsible for intentionally or inadvertently violating the laws in any jurisdiction, we may be subject to governmental inquiries, enforcement actions, prosecuted, or otherwise held secondarily liable for aiding or facilitating such activities. Changes in law have also increased the penalties for money transmitters for certain illegal activities, and government authorities may consider increased or additional penalties from time to time. Owners of intellectual property rights or government authorities may seek to bring legal action against money transmitters, including us, for involvement in the sale of infringing or allegedly infringing items. Any threatened or resulting claims could result in reputational harm, and any resulting liabilities, loss of transaction volume, or increased costs could harm our business.
Moreover, while fiat currencies can be used to facilitate illegal activities, crypto assets are relatively new and, in many jurisdictions, may be lightly regulated or largely unregulated. Many types of crypto assets have characteristics, such as the speed with which digital currency transactions can be conducted, the ability to conduct transactions without the involvement of regulated intermediaries, the ability to engage in transactions across multiple jurisdictions, the irreversible nature of certain crypto asset transactions, and encryption technology that anonymizes these transactions, that make crypto assets susceptible to use in illegal activity. U.S. federal and state and foreign regulatory authorities and law enforcement agencies, such as the Department of Justice, Securities and Exchange Commission, Commodity Futures Trading Commission, Federal Trade Commission, or the Internal Revenue Service, and various state securities and financial regulators have taken and continue to take legal action against persons and entities alleged to be engaged in fraudulent schemes or other illicit activity involving crypto assets. We also support crypto assets that incorporate privacy-enhancing features, and may from time to time support additional crypto assets with similar functionalities. These privacy-enhancing crypto assets obscure the identities of sender and receiver, and may prevent law enforcement officials from tracing the source of funds on the blockchain. Facilitating transactions in these crypto assets may cause us to be at increased risk of liability arising out of anti-money laundering and economic sanctions laws and regulations.
Our compliance and risk management methods might not be effective and may result in outcomes that could adversely affect our reputation, operating results, and financial condition.
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. While we have devoted comparatively significant resources to develop policies and procedures to identify, monitor, and manage our risks, and expect to continue to do so in the future, we cannot assure you that our policies and procedures are and will always be effective or that we have been and will always be successful in monitoring or evaluating the risks to which we are or may be exposed in all market environments or against all types of risks, including unidentified or unanticipated risks. Our risk management policies and procedures rely on a combination of technical and human controls and supervision that are subject to error and failure. Some of our methods for managing risk are discretionary by nature and are based on internally developed controls and observed historical market behavior, and also involve reliance on standard industry practices. 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. Accordingly, 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. Our risk management policies and procedures also may not adequately prevent losses due to technical errors if our testing and quality control practices are not effective in preventing failures. In addition, we may elect to adjust our risk management policies and procedures to allow for an increase in risk tolerance, which could expose us to the risk of greater losses.
The crypto-economy is novel. As a result, policymakers are just beginning to consider what a regulatory regime for crypto would look like and the elements that would serve as the foundation for such a regime. This less developed consideration of crypto may harm our ability to effectively react to proposed legislation and regulation of crypto assets or crypto asset platforms adverse to our business.
As crypto assets have grown in both popularity and market size, various U.S. federal, state, and local and foreign governmental organizations, consumer agencies, and public advocacy groups have been examining the operations of crypto networks, users, and platforms, with a focus on how crypto assets can be used to launder the proceeds of illegal activities, fund criminal or terrorist enterprises, and simultaneously how to ensure the safety and soundness of platforms and other service providers that hold crypto assets for users. Many of these entities have called for heightened regulatory oversight, and have issued consumer advisories describing the risks posed by crypto assets to users and investors.
Competitors, including traditional financial services, have spent years cultivating professional relationships with relevant policymakers on behalf of their industry so that those policymakers may understand that industry, the current legal landscape affecting that industry, and the specific policy proposals that could be implemented in order to responsibly develop that industry. The lobbyists working for these competitors have similarly spent years developing and working to implement strategies to advance these industries. Members of the crypto-economy have started to engage policymakers directly and with the help of external advisors and lobbyists. However, these efforts to educate policymakers and advocate for sensible regulation are nascent compared to more established industries, and may be perceived unfavorably by investors and the public and have an adverse impact on our brand and reputation. As a result, new laws and regulations may be
proposed and adopted in the United States and internationally, or existing laws and regulations may be interpreted in new ways, that harm the crypto-economy or crypto asset platforms, which could adversely affect our business, operating results, and financial condition.
We obtain and process a large amount of sensitive customer data. Any real or perceived improper use of, disclosure of, or access to such data could harm our reputation, as well as adversely affect our business, operating results, and financial condition.
We obtain and process 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 scanning of photographs for identity verification), trading data, tax identification, and bank account information. We face risks, including to our reputation, in the handling and protection of this data, and these risks will increase as our business continues to expand, including through our acquisition of, and investment in, other companies and technologies. Federal, state, and international laws and regulations governing privacy, data protection, and e-commerce transactions require us to safeguard our customers’, employees’, and service providers’ personal data.
We have administrative, technical, and physical security measures and controls in place and maintain a robust information security program. However, our security measures, those of our vendors or service providers, or the security measures of companies we acquire, may be inadequate or breached as a result of third-party action, employee or service provider error, malfeasance, malware, phishing, hacking attacks, system error, trickery, advances in computer capabilities, new discoveries in the field of cryptography, inadequate facility security or otherwise, and, as a result, someone may be able to obtain unauthorized access to sensitive information, including personal data, on our systems. We could be the target of a cybersecurity incident, which could result in harm to our reputation and financial losses. Additionally, privacy and data protection laws are evolving, and these laws may be interpreted and applied in a manner that is inconsistent with our data handling safeguards and practices that could result in fines, lawsuits, and other penalties, and significant changes to our or our third-party partners’ business practices and products and service offerings.
Our future success depends on the reliability and security of our platform. To the extent that the measures we, any companies we acquire, or our third-party service providers, vendors, or business partners have taken prove to be insufficient or inadequate, or to the extent we discover a security breach suffered by a company we acquire following the closing of such acquisition, we may become subject to litigation, breach notification obligations, or regulatory or administrative sanctions, which could result in significant fines, penalties, damages, harm to our reputation, or loss of customers. If our own confidential business information or sensitive customer information were improperly disclosed, our business, operating results, and financial condition could be adversely affected. Additionally, a party who circumvents our security measures could, among other effects, appropriate customer information or other proprietary data, cause interruptions in our operations, or expose customers to hacks, viruses, and other disruptions.
Depending on the nature of the information compromised, in the event of a data breach or other unauthorized access to our customer data, we may also have obligations to notify customers and regulators about the incident, and we may need to provide some form of remedy, such as a subscription to credit monitoring services, pay significant fines to one or more regulators, or pay compensation in connection with a class-action settlement. Breach notification laws continue to evolve and may be inconsistent from one jurisdiction to another. In the United States, the SEC has adopted rules for mandatory disclosure of material cybersecurity incidents suffered by public companies, as well as cybersecurity governance and risk management. Complying with these obligations could cause us to incur substantial costs and could increase negative publicity surrounding any incident that compromises customer data. Any failure or perceived failure by us to comply with these laws may also subject us to enforcement action or litigation, any of which could harm our business. Additionally, the financial exposure from the events referenced above could either not be insured against or not be fully covered through any insurance that we may maintain, and there can be no assurance that the limitations of liability in any of our contracts would be enforceable or adequate or would otherwise protect us from liabilities or damages as a result of the events referenced above. Any of the foregoing could adversely affect our business, reputation, operating results, and financial condition.
Furthermore, we may be required to disclose personal data pursuant to demands from individuals, regulators, government agencies, and law enforcement agencies in various jurisdictions with conflicting privacy and security laws, which could result in a breach of privacy and data protection policies, notices, laws, rules, court orders, and regulations. Additionally, changes in the laws and regulations that govern our collection, use, and disclosure of customer data could impose additional requirements with respect to the retention and security of customer data, could limit our marketing activities, and adversely affect our business, operating results, and financial condition.
We are subject to laws, regulations, and industry requirements related to data privacy, data protection and information security, and user protection where we conduct our business, and industry requirements and such laws, regulations, and industry requirements are constantly evolving and changing. Any actual or perceived failure to comply with such laws, regulations, and industry requirements, or our privacy policies, could harm our business.
Various local, state, federal, and international laws, directives, and regulations apply to our collection, use, retention, protection, disclosure, transfer, and processing of personal data. These data protection and privacy laws and regulations are subject to uncertainty and continue to evolve in ways that could adversely affect our business, operating results, and financial condition. These laws have a substantial impact on our operations both outside and in the United States, either directly or as a data processor and handler for various offshore entities.
In the United States, state and federal lawmakers and regulatory authorities have increased their attention on the collection and use of user data and various laws and regulations apply to the collection, processing, disclosure, and security of certain types of data, including the Gramm Leach Bliley Act (“GLBA”) and state laws relating to privacy and data security. GLBA requires financial institutions to explain their information sharing practices to their customers and to safeguard sensitive data. Additionally, the Federal Trade Commission and many state attorneys general are interpreting federal and state consumer protection laws as imposing standards for the online collection, use, dissemination, and security of data. For example, California has enacted the California Consumer Privacy Act (the “CCPA”).
The CCPA requires covered companies to, among other things, provide disclosures to individuals in California, and affords such individuals new privacy rights such as the ability to opt-out of certain sales of personal information and expanded rights to access and require deletion of their personal information, opt out of certain personal information sharing, and receive detailed information about how their personal information is collected, used, and shared. The CCPA provides for civil penalties for violations, as well as a private right of action for security breaches that may increase security breach litigation.
In addition, other U.S. states have proposed or enacted laws that contain obligations similar to the CCPA that have taken effect or will take effect in coming years. We cannot fully predict the impact of recently proposed or enacted laws or regulations on our business or operations, but compliance may require us to modify our data processing practices and policies incurring costs and expense. Further, to the extent multiple state-level laws are introduced with inconsistent or conflicting standards, it may require costly and difficult efforts to achieve compliance with such laws. Our failure or perceived failure to comply with state privacy laws or regulations passed in the future could adversely affect our business, including how we use personal information, operating results, and financial condition.
There is a risk that as we expand, we may assume liabilities for breaches experienced by the companies that we may acquire. Additionally, there are potentially inconsistent world-wide government regulations pertaining to data protection and privacy. Despite our efforts to comply with applicable laws, regulations, and other obligations relating to privacy, data protection, and information security, it is possible that our practices, offerings, or platform could fail, or be alleged to fail to meet applicable requirements. For instance, the overall regulatory framework governing the application of privacy laws to blockchain technology is still highly undeveloped and likely to evolve. Further there are also changes in the regulatory landscape relating to new and evolving technologies. Our failure, or the failure by our third-party providers or partners, to comply with applicable laws or regulations and to prevent unauthorized access to, or use or release of personal data, or the perception that any of the foregoing types of failure has occurred, even if unfounded, could subject us to audits, inquiries, whistleblower complaints, adverse media coverage, investigations, severe criminal, or civil sanctions, damage our reputation, or result in fines or proceedings by governmental agencies and private claims and litigation, any of which could adversely affect our business, operating results, and financial condition.
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 and, to a smaller extent, on our brand. 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, and any of our intellectual property rights may be challenged, which could result in them being narrowed in scope or declared invalid or unenforceable. 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.
Effective protection of our intellectual property may be expensive and difficult to maintain, both in terms of application and registration costs as well as the costs of defending and enforcing those rights. Further, intellectual property protection may not be available to us in every country in which our products and services are available, and the regulatory landscape in such jurisdictions may evolve rapidly, leading to an unanticipated change in the ability to obtain and enforce intellectual property rights in these jurisdictions.
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 operate in a relatively new industry that is not widely understood and requires highly skilled and technical personnel. 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. To attract and retain key personnel, we incur significant costs, including salaries and benefits and equity incentives. Even so, these measures may not be enough to attract and retain the personnel we require to operate our business effectively. 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 and impair our ability to grow.
Our culture emphasizes innovation, and if we cannot maintain this culture, 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 since our acquisition of our operating subsidiary. 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, we could lose the innovation, creativity, and teamwork that has been integral to our operating crypto business.
Risks Relating to Our Biotechnology Segment
If we fail to implement our biopharmaceutical business strategy or if our biopharmaceutical business strategy is ineffective, our financial performance could be materially and adversely affected.
Our future financial performance and success are dependent in large part upon the effectiveness of our new biopharmaceutical business strategy and our ability to implement our biopharmaceutical business strategy successfully. Implementation of our strategy will require effective management of our operational, financial, and human resources and will place significant demands on those resources. There are risks involved in pursuing our strategy, including those under the caption “Risks Relating to Our Biotechnology Segment”. In addition to the risks set forth elsewhere in this Form 10-K, effectiveness of and the successful implementation of our business strategy could also be affected by a number of factors beyond our control, such as increased competition, legal developments, government regulation, general economic conditions, increased operating costs or expenses, and changes in industry trends. We may decide to alter or discontinue certain aspects of our business strategy at any time. If we are not able to implement our business strategy successfully, our long-term growth and profitability may be adversely affected. Even if we are able to implement some or all of the initiatives of our business strategy successfully, our operating results may not improve and could decline substantially.
Our biotechnology business has a limited operating history.
Our biotechnology business was started in September 2019 and has a limited operating history. We have not commenced revenue-producing operations. To date, our biotechnology-related operations have consisted of preliminary research and development, and characterization and testing of SR TV1001 (now known as JAN101) and our December 2022 acquisition of Soin Therapeutics and its LDN product (now known as JAN123). Our limited operating history makes it difficult for potential investors to evaluate our technology or the prospective operations of our biotechnology business. You should consider the prospects of our biotechnology business in light of the costs, uncertainties, delays, and difficulties frequently encountered by companies in the early stages of development, especially clinical-stage biopharmaceutical businesses such
as ours. Potential investors should carefully consider the risks and uncertainties that a biotechnology business with a limited operating history faces. In particular, potential investors should consider that we may be unable to (i) successfully implement or execute the business plan of our biotechnology business or currently validate that our biotechnology business plan is sound; (ii) successfully complete clinical trials and obtain regulatory approval for the marketing of JAN101 or JAN123; (iii) successfully demonstrate a favorable differentiation between JAN101 or JAN123 and the current products on the market; (iv) successfully manufacture our clinical drug product and establish a commercial drug supply; (v) secure market exclusivity and/or adequate intellectual property protection for JAN101 or JAN123; and (vi) raise sufficient funds in the capital markets to effectuate our biotechnology business plan, including product and clinical development, regulatory approval, and commercialization for JAN101 or JAN123.
Our business model is partially dependent on certain patent rights licensed to us from the Licensors (as defined below), and the loss of those license rights would, in all likelihood, cause our business, as presently contemplated, to fail.
In November 2019, UABRF, TheraVasc, and the Board of Supervisors of Louisiana State University and Agricultural and Mechanical College, acting on behalf of LSU Health Shreveport, together with UABRF and TheraVasc, (collectively, the “Licensors”), granted us an exclusive worldwide, royalty-bearing license to the patent rights for SR TV1001 (now known as JAN101) in the negotiated fields of use. The patent license agreement requires us to pay royalties and milestone payments and conform to a variety of covenants and agreements, and in the event of our breach of the agreement, the Licensors may elect to terminate the agreement. As of the date of this Form 10-K, we believe we are in compliance with the patent license agreement and consider our relationship with the Licensors to be excellent.
We will be completely dependent on third parties to manufacture JAN101 and JAN123, and their commercialization could be halted, delayed, or made less profitable if those third parties fail to obtain manufacturing approval from the FDA or comparable foreign regulatory authorities, fail to provide us with sufficient quantities of JAN101 or JAN123, or fail to do so at acceptable quality levels or prices.
We do not currently have, nor do we plan to acquire, the capability or infrastructure to manufacture our drug candidate for use in our clinical trials or for commercial sales, if any. As a result, we will be obligated to rely on contract manufacturers when we conduct clinical trials and if and when our initial or subsequent product candidates are approved for commercialization. In January 2020, we entered into a Master Agreement for Development, Manufacturing and Supply with CoreRx Inc. (“CoreRx”), pursuant to which CoreRx has agreed to provide to us certain product testing, development, and clinical manufacturing services for JAN101. We have not yet entered into any manufacturing agreements for the manufacture of JAN123 and must identify and contract with a company capable of producing sufficient quantities of this product for our clinical trials. We have not entered into agreements with any contract manufacturers for commercial supply for either JAN101 or JAN123 and may not be able to engage contract manufacturers for commercial supply of our initial or subsequent product candidates on favorable terms to us, or at all, should the need arise.
We do not currently have, nor do we plan to acquire, the capability or infrastructure to manufacture our drug candidate for use in our clinical trials or for commercial sales, if any. As a result, we will be obligated to rely on contract manufacturers when we conduct clinical trials and if and when our initial or subsequent product candidates are approved for commercialization. In January 2020, we entered into a Master Agreement for Development, Manufacturing and Supply with CoreRx Inc. (“CoreRx”), pursuant to which CoreRx has agreed to provide to us certain product testing, development, and clinical manufacturing services for JAN 101. We have not entered into agreements with any contract manufacturers for commercial supply and may not be able to engage contract manufacturers for commercial supply of our initial or subsequent product candidates on favorable terms to us, or at all, should the need arise.
In a previous clinical trial, the manufacture of JAN101 by a different manufacturing company resulted in a product that demonstrated initial instability that led to the product being out-of-specification. While the FDA allowed the trial to continue, there is no guarantee that, if the product manufactured by CoreRx is similarly unstable, the FDA will allow us to continue to develop that product. Even if the product manufactured by CoreRx is stable, the FDA may require additional studies to confirm the stability of the product, increasing development cost and times.
The facilities used by CoreRx to manufacture JAN101 must be approved by the FDA or comparable foreign regulatory authorities. Such approvals are subject to inspections that will be conducted after we submit an NDA to the FDA or their equivalents to other relevant regulatory authorities. We will not control the manufacturing process of JAN101, JAN123 or subsequent product candidates and will be completely dependent on our contract manufacturing partners for compliance with cGMPs, for manufacture of both active drug substances and finished drug products. These cGMP regulations cover all aspects of the manufacturing, testing, quality control, storage, distribution, and record keeping relating to our initial or subsequent product candidates. If our contract manufacturers do not successfully manufacture material that conforms to our specifications and the strict regulatory requirements of the FDA or others, we will not be able to secure or maintain regulatory approval for products made at their manufacturing facilities. If the FDA or a comparable foreign regulatory
authority does not approve these facilities for the manufacture of our initial or subsequent product candidates or if it withdraws any such approval in the future, we may need to find alternative manufacturing facilities, which would significantly impact our ability to develop, manufacture, obtain regulatory approval for, or market our initial or subsequent product candidates, if approved. Likewise, we could be negatively impacted if any of our contract manufacturers elect to discontinue their business relationship with us.
Our contract manufacturer will be subject to ongoing periodic unannounced inspections by the FDA and corresponding state and foreign agencies for compliance with cGMPs and similar regulatory requirements. We will not have control over our contract manufacturer’s compliance with these regulations and standards. Failure by our contract manufacturer to comply with applicable regulations could result in sanctions being imposed on us, including fines, injunctions, civil penalties, failure to grant approval to market JAN101 or JAN123, delays, suspensions or withdrawals of approvals, inability to supply product, operating restrictions, and criminal prosecutions, any of which could significantly and adversely affect our biotechnology business. In addition, we will not have control over the ability of our contract manufacturer to maintain adequate quality control, quality assurance, and qualified personnel. Failure by our contract manufacturer to comply with or maintain any of these standards could adversely affect our ability to develop, manufacture, obtain regulatory approval for or market JAN101 or JAN123, if approved.
Our manufacturer must obtain the API from a third party. A number of groups manufacture our API; however, some of these are manufactured as a food product, and others, while manufactured under GMP, do not have the required Drug Master File on file with the FDA. CoreRx identified an API from Merck KGaA for use in the current production of clinical grade JAN101. At the time of the manufacture of the API, the product met the specifications outlined in both the drug substance monographs for Europe and the US. However, subsequent to the manufacture of the API, the US monograph was changed in the US Pharmacopeia (“USP”) and, while most of the tests conform, Merck KGaA was unable to complete two of the new testing requirements. Although the two tests are not considered safety issues and do not impact the quality of the product, there is no guarantee the FDA will approve the product for clinical trials if the two tests are not completed, which could delay our ability to start the Phase IIb clinical trial, as planned. Identifying an analytical laboratory to perform the two tasks may be difficult and could require development and validation of the tests, adding both time and costs to us. In addition, there is no guarantee that, once developed, the product will meet the specifications as outlined in the USP. Even if the FDA allows the current product to be used in the Phase IIb clinical trial, there is no guarantee that the FDA will allow further clinical work with the product or commercialization of the product until it is shown to conform to USP standards. We may be required to work with the API manufacturer to file the appropriate documents and there is no guarantee that the FDA will approve the filing. This could necessitate additional funding to hire an API manufacturer and produce the product under GMP with all necessary filings.
If, for any reason, these third parties are unable or unwilling to perform, we may not be able to locate alternative manufacturers or formulators or enter into favorable agreements with them and we cannot be certain that any such third parties will have the manufacturing capacity to meet future requirements. If these manufacturers or any alternate manufacturer of finished drug product experiences any significant difficulties in its respective manufacturing processes for APIs or finished products or should cease doing business with us for any reason, we could experience significant interruptions in the supply of our initial or subsequent product candidates or may not be able to create a supply of any of our ls at all. Were we to encounter manufacturing difficulties, our ability to produce a sufficient supply of any of our product candidates might be negatively affected. Our inability to coordinate the efforts of our third-party manufacturing partners, or the lack of capacity available at our third-party manufacturing partners, could impair our ability to supply any of our product candidates at required levels. Because of the significant regulatory requirements that we would need to satisfy in order to qualify a new bulk drug substance or finished product manufacturer, if we face these or other difficulties with our then-current manufacturing partners, we could experience significant interruptions in the supply of any of our product candidates if we decided to transfer the manufacture of any of our product candidates to one or more alternative manufacturers in an effort to deal with such difficulties.
CoreRx currently serves as our sole manufacturer of JAN101. As CoreRx also manufactures other products, there can be no guarantee that CoreRx will have the capacity to manufacture additional clinical product for us in a timely manner, when required, which could lead to significant delays in initiating other clinical studies. CoreRx will unlikely have the capacity to manufacture the amount of product needed, if and when JAN101 is approved for marketing. This would necessitate identifying additional manufacturer(s) who may or may not be able to replicate the manufacturing process developed at CoreRx. In addition, the increase in quantities required for commercialization of the product, if commercialization occurs, could require modifying the manufacturing process to produce larger quantities of tablets more efficiently. Such modifications of the manufacturing process, if even possible, could result in significant delays in the delivery of the product.
We will be validating the manufacturing process, with appropriate process parameters and critical process, at CoreRx in 2024. Based on current batch sizes, these validated processes will support the manufacture of approximately 6.5 million
tablets a month. This would allow us to enter the marketplace, but would support sales of only 1-2% of the addressable market. There is no guarantee that CoreRx will increase its manufacturing capacity when needed by us; thus, we will likely need to identify another approved manufacturer with increased capacity. In addition, we will need to revalidate the manufacturing process to demonstrate to the FDA the ability to reproducibly manufacture larger batch sizes, which will increase time and costs. If these activities are not carried out in a timely manner, a shortage of product could result following commercial launch, which could significantly affect sales and overall valuation of the Company.
Any manufacturing problem or the loss of our contract manufacturer could be disruptive to our operations and result in development delays and lost sales. Additionally, we will rely on third parties to supply the raw materials needed to manufacture our initial or subsequent product candidates. Any such reliance on suppliers may involve several risks, including a potential inability to obtain critical materials and reduced control over production costs, delivery schedules, reliability, and quality. Any unanticipated disruption to the operation of one of our contract manufacturers caused by problems with suppliers could delay shipment of any of our product candidates, increase our cost of goods sold and result in lost sales.
Pharmacies may be able to compound LDN in competition with us, but the economic impact may not be material.
JAN123 is a biphaisc formulation of LDN being developed for CRPS. However, compounding pharmacies have already sold a non-biphasic LDN for this purpose and for other purposes. The patent ALT5 Sigma Corporation was issued for JAN123, in conjunction with Orphan Drug approval, will provide additional marketing protection for CRPS. Compounding pharmacies are not subject to FDA approval and could compound LDN for their patients. We believe that production and sales by a single compounding pharmacy of a material amount of a compounded product would transform such compounding pharmacy into a pharmaceutical manufacturer, which would then subject it to all of the FDA approval protocols, including cGMP requirements. Thus, compounding pharmacies would not be able to scale their compounding activities for LDN to facilitate their material sales growth of LDN or to become impactful in the marketplace. As disclosed below, we cannot provide assurances with respect to third-party coverage and reimbursement. We believe that persons who purchase LDN from a compounding pharmacy may need to pay out-of-pocket for the product with limited or no insurance coverage.
If product liability lawsuits are brought against us, we may incur substantial liabilities and may be required to limit commercialization of our initial or subsequent product candidates.
We will face a potential risk of product liability as a result of the clinical testing of our initial or subsequent product candidates. For example, we may be sued if any product we develop, including JAN101, JAN123 or any materials that we use in it, allegedly causes injury or is found to be otherwise unsuitable during product testing and manufacturing. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability, and a breach of warranties. In the United States, claims could also be asserted against us under state consumer protection acts. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit commercialization of our initial or subsequent product candidates. Even successful defense of these claims would require us to employ significant financial and management resources. Regardless of the merits or eventual outcome, liability claims may result in, among other things (i) decreased demand for JAN101, JAN123 or any future products that we may develop; (ii) failure to obtain regulatory approval for our product candidates; (iii) withdrawal of participants in our clinical trials; (iv) substantial monetary awards to trial participants or patients; (v) product recalls or withdrawals or labeling, marketing, or promotional restrictions; and (vi) the inability to commercialize our initial or subsequent product candidates. As of the date of this Form 10-K, we do not carry product liability insurance.
The success of our biotechnology business is entirely dependent on our ability to obtain the marketing approval for our product candidates by the FDA and the regulatory authorities in foreign jurisdictions in which we intend to market them, of which there can be no assurance.
We are not permitted to market JAN101 or JAN123 as prescription pharmaceutical products in the United States until we receive approval of an NDA from the FDA, or in any foreign countries until we receive the requisite approval from such countries. In the United States, the FDA generally requires the completion of clinical trials of each drug to establish its safety and efficacy and extensive pharmaceutical development to ensure its quality before an NDA is approved. Of the large number of drugs in development, only a small percentage result in the submission of an NDA to the FDA and even fewer are eventually approved for commercialization. As of the date of this Form 10-K, we have not submitted an NDA to the FDA or comparable applications to other regulatory authorities for any subsequent product candidates.
Because of the clinical trial history of JAN101, we believe that JAN101 will qualify for FDA approval through the FDA’s 505(b)(2) regulatory pathway and in corresponding regulatory paths in other foreign jurisdictions. Notwithstanding the use
of the FDA’s 505(b)(2) regulatory pathway, we will be required to conduct Phase IIb and Phase III studies prior to filing for marketing approval of JAN101.
The active ingredient in JAN123 is naltrexone, which has been approved for use at much higher doses by the FDA for other indications, thus we believe that JAN123 will also qualify for the 505(b)(2) regulatory pathway. In addition, the FDA has approved the Orphan Designation for JAN123, which could lead to approval after just two clinical trials. However, based on the strength of the results of the registration trial, the FDA could request additional clinical studies prior to approval.
Our success depends on our receipt of the regulatory approvals described above, and the issuance of such regulatory approvals is uncertain and subject to a number of risks, including the following: (i) the results of toxicology studies may not support the filing of an NDA for JAN101; (ii) the FDA may require additional pharmacokinetic studies with JAN101, including studies with food, prior to allowing the Company to conduct Phase IIb and Phase III clinical trials; (iii) the FDA or comparable foreign regulatory authorities or Institutional Review Boards (“IRBs”) may disagree with the design or implementation of our clinical trials; (iv) we may not be able to provide acceptable evidence of JAN101’s safety and efficacy; (v) the results of our clinical trials may not be satisfactory or may not meet the level of statistical or clinical significance required by the FDA, the EMA, or other regulatory agencies for us to receive marketing approval for JAN101; (vi) the dosing of JAN101 in a particular clinical trial may not be at an optimal level; (vii) patients in our clinical trials may suffer adverse effects for reasons that may or may not be related to JAN101; (viii) the data collected from clinical trials may not be sufficient to support the submission of an NDA or other submission or to obtain regulatory approval in the United States or elsewhere; (ix) the FDA or comparable foreign regulatory authorities may fail to approve the manufacturing processes or facilities of third-party manufacturers with which we contract for clinical and commercial supplies; and (x) the approval policies or regulations of the FDA or comparable foreign regulatory authorities may significantly change in a manner rendering our clinical data insufficient for approval of JAN101.
The process of obtaining regulatory approvals is expensive, often takes many years, if approval is obtained at all, and can vary substantially based upon, among other things, the type, complexity, and novelty of the product candidates involved, the jurisdiction in which regulatory approval is sought, and the substantial discretion of the regulatory authorities. Changes in regulatory approval policies during the development period, changes in or the enactment of additional statutes or regulations, or changes in regulatory review for a submitted product application may cause delays in the approval or rejection of an application. Regulatory approval obtained in one jurisdiction does not necessarily mean that a product candidate will receive regulatory approval in any or all other jurisdictions in which we may seek approval; but, the failure to obtain approval in one jurisdiction may negatively impact our ability to seek approval in a different jurisdiction. Failure to obtain regulatory approval for JAN101 or JAN123 for the foregoing, or any other reasons, will prevent us from commercializing JAN101 or JAN123, and our ability to generate revenue will be materially impaired.
Clinical testing is expensive, is difficult to design and implement, can take many years to complete, and is uncertain as to outcome.
Our business model depends in part on the successful development, regulatory approval, and commercialization of JAN101 or JAN123, which may never occur. Both JAN101 and JAN123 are in the early stages of development and, as of the date of this Form 10-K, we have not progressed JAN101 beyond early clinical studies designed only to show safety, nor has JAN123 been tested in any FDA approved clinical trials. Three INDs have previously been submitted by previous licensees/assignees of JAN101 and were accepted by the FDA. These INDs were transferred to ALT5 Sigma Corporation in 2020. Even though the INDs were transferred to us, the FDA may still require additional work prior to re-initiation of clinical trials. If we do not obtain such approvals to re-initiate trials as presently planned, the time in which we expect to commence clinical programs for any product candidate will be extended and such extension will increase our expenses, delay our potential receipt of any revenues, and increase our need for additional capital. Moreover, there is no guarantee that we will receive approval to commence human clinical trials or, if we do receive approval, that our clinical trials will be successful or that we will continue clinical development in support of an approval from the FDA or comparable foreign regulatory authorities for any indication. We note that most product candidates never reach the clinical development stage and even those that do commence clinical development have only a small chance of successfully completing clinical development and gaining regulatory approval. Success in early phases of pre-clinical and clinical trials does not ensure that later clinical trials will be successful, and interim results of a clinical trial do not necessarily predict final results. A failure of one or more of our clinical trials can occur at any stage of testing. We may experience numerous unforeseen events during, or as a result of, the clinical trial process that could delay or prevent our ability to receive regulatory approval or commercialize our initial or any subsequent product candidates. Therefore, our business currently depends entirely on the successful development, regulatory approval, and commercialization of our product candidates, which may never occur.
JAN123 has received Orphan Drug designation from the FDA, allowing for fewer and smaller clinical trials prior to approval. In part, this is due to fewer patients being available for treatment and may lead to delays in recruiting subjects for the trial and therefore delays in reaching the market.
Even if we receive regulatory approval for JAN101 or JAN123, we may not be able to commercialize it successfully and the revenue that we generate from its sales, if any, may be limited.
If approved for marketing, the commercial success of JAN101 will depend upon the product’s acceptance by the medical community, including physicians, patients, and health care payors. The degree of market acceptance for JAN101 will depend on a number of factors, including (i) demonstration of clinical safety and efficacy; (ii) relative convenience, dosing burden, and ease of administration; (iii) the prevalence and severity of any adverse effects; (iv) the willingness of physicians to prescribe JAN101 and the target patient population to try new therapies; (v) efficacy of JAN 101 compared to competing products; (vi) the introduction of any new products that may in the future become available, targeting indications for which JAN101 may be approved; (vii) new procedures or therapies that may reduce the incidences of any of the indications in which JAN101 may show utility; (viii) pricing and cost-effectiveness; (ix) the inclusion or omission of JAN101 in applicable guidelines; (x) the effectiveness of our own or any future collaborators’ sales and marketing strategies; (xi) limitations or warnings contained in approved labeling from regulatory authorities; (xii) our ability to obtain and maintain sufficient third-party coverage or reimbursement from government health care programs, including Medicare and Medicaid, private health insurers, and other third-party payors or to receive the necessary pricing approvals from government bodies regulating the pricing and usage of therapeutics; and (xiii) the willingness of patients to pay out-of-pocket in the absence of third-party coverage or reimbursement or government pricing approvals.
JAN123 will face al the commercialization factors described above with an additional risk of compounding pharmacies prescribing the product to patients. The active ingredient, naltrexone, is available and has been compounded into LDN formulations similar to JAN123. These compounded LDN formulations have been provided to numerous patients with different forms of pain. While not approved for the treatment of pain and therefore unlikely to be reimbursed, the low cost of the compounded LDN could cause reduce pricing of JAN123. We believe that JAN123 will have advantages over the compounded LDN in terms of reduced side effects, but many patients currently have not had the side effects or accepted these as part of reducing their pain with compounded LDN. ALT5 Sigma Corporation may have to enforce its patents, which could result in lengthy and costly litigation, to prevent compounding pharmacies from selling LDN for indications for which ALT5 Sigma Corporation has received patent protection.
If JAN101 or JAN123 is approved but does not achieve an adequate level of acceptance by physicians, health care payors, and patients, our biotechnology business may not generate sufficient revenue to cover costs. Our efforts to educate the medical community and third-party payors on the benefits of JAN101 or JAN123 may require significant resources and may never be successful.
In addition, even if we obtain regulatory approvals, the timing or scope of any approvals may prohibit or reduce our ability to commercialize JAN101 or JAN123 successfully. For example, if the approval process takes too long, we may miss market opportunities and give other companies the ability to develop competing products or establish market dominance. Any regulatory approval we ultimately obtain may be limited or subject to restrictions or post-approval commitments that renders our product candidate not commercially viable. For example, regulatory authorities may approve our product candidate for fewer or more limited indications than we request, may not approve the price we intend to charge for our product candidate, may grant approval contingent on the performance of costly post-marketing clinical trials, or may approve any of our product candidates with a label that does not include the labeling claims necessary or desirable for the successful commercialization of that indication. Further, the FDA or comparable foreign regulatory authorities may place conditions on approvals or require risk management plans or a REMS to assure the safe use of the drug. Moreover, product approvals may be withdrawn for non-compliance with regulatory standards or if problems occur following the initial marketing of the product. Any of the foregoing scenarios could materially harm the commercial success of our product candidate.
Even if we obtain marketing approval for our product candidate, we will be subject to ongoing obligations and continued regulatory review, which may result in significant additional expense. Additionally, our product candidate could be subject to labeling and other restrictions and withdrawal from the market and we may be subject to penalties if we fail to comply with regulatory requirements or if we experience unanticipated problems with our product candidate.
Even if we obtain regulatory approval for our product candidate for an indication, the FDA or foreign equivalent may still impose significant restrictions on its indicated uses or marketing or the conditions of approval, or impose ongoing requirements for potentially costly and time-consuming post-approval studies, including Phase IV clinical trials, and post-market surveillance to monitor safety and efficacy. Our product candidate will also be subject to ongoing regulatory
requirements governing the manufacturing, labeling, packaging, storage, distribution, safety surveillance, advertising, promotion, recordkeeping and reporting of adverse events, and other post-market information. These requirements include registration with the FDA, as well as continued compliance with current good clinical practices regulations for any clinical trials that we conduct post-approval. In addition, manufacturers of drug products and their facilities are subject to continual review and periodic inspections by the FDA and other regulatory authorities for compliance with current cGMPs, requirements relating to quality control, quality assurance and corresponding maintenance of records and documents.
The FDA has the authority to require a REMS as part of an NDA or after approval, which may impose further requirements or restrictions on the distribution or use of an approved drug, such as limiting prescribing to certain physicians or medical centers that have undergone specialized training, limiting treatment to patients who meet certain safe-use criteria or requiring patient testing, monitoring and/or enrollment in a registry.
With respect to sales and marketing activities related to our product candidate, advertising and promotional materials must comply with FDA rules in addition to other applicable federal, state, and local laws in the United States and similar legal requirements in other countries. In the United States, the distribution of product samples to physicians must comply with the requirements of the United States Prescription Drug Marketing Act. Application holders must obtain FDA approval for product and manufacturing changes, depending on the nature of the change. We may also be subject, directly or indirectly through our customers and partners, to various fraud and abuse laws, including, without limitation, the United States Anti-Kickback Statute, United States False Claims Act, and similar state laws, which impact, among other things, our proposed sales, marketing, and scientific/educational grant programs. If we participate in the United States Medicaid Drug Rebate Program, the Federal Supply Schedule of the United States Department of Veterans Affairs, or other government drug programs, we will be subject to complex laws and regulations regarding reporting and payment obligations. All of these activities are also potentially subject to United States federal and state consumer protection and unfair competition laws. Similar requirements exist in many of these areas in other countries.
In addition, if JAN101 or JAN123 is approved for a particular indication, our product labeling, advertising, and promotion would be subject to regulatory requirements and continuing regulatory review. The FDA strictly regulates the promotional claims that may be made about prescription products. In particular, a product may not be promoted for uses that are not approved by the FDA as reflected in the product’s approved labeling. If we receive marketing approval for JAN101 or JAN123, physicians may nevertheless legally prescribe our product to their patients in a manner that is inconsistent with the approved label. If we are found to have promoted such off-label uses, we may become subject to significant liability and government fines. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to significant sanctions. The federal government has levied large civil and criminal fines against companies for alleged improper promotion and has enjoined several companies from engaging in off-label promotion. The FDA has also requested that companies enter into consent decrees of permanent injunctions under which specified promotional conduct is changed or curtailed.
If we or a regulatory agency discover previously unknown problems with one of our product candidates, such as adverse events of unanticipated severity or frequency, problems with the facility where the product is manufactured, or we or our manufacturers fail to comply with applicable regulatory requirements, we may be subject to the following administrative or judicial sanctions: (i) restrictions on the marketing or manufacturing of the product, withdrawal of the product from the market, or voluntary or mandatory product recalls; (ii) issuance of warning letters or untitled letters; (iii) clinical holds; (iv) injunctions or the imposition of civil or criminal penalties or monetary fines; (v) suspension or withdrawal of regulatory approval; (vi) suspension of any ongoing clinical trials; (vii) refusal to approve pending applications or supplements to approved applications filed by us, or suspension or revocation of product license approvals; (viii) suspension or imposition of restrictions on operations, including costly new manufacturing requirements; or (ix) product seizure or detention or refusal to permit the import or export of product. The occurrence of any event or penalty described above may inhibit our ability to commercialize our product candidates and generate revenue. Adverse regulatory action, whether pre- or post-approval, can also potentially lead to product liability claims and increase our product liability exposure.
Obtaining and maintaining regulatory approval of JAN101 or JAN123 in one jurisdiction does not mean that we will be successful in obtaining regulatory approval of JAN101 or JAN123 in other jurisdictions.
Obtaining and maintaining regulatory approval of our initial or subsequent product candidates in one jurisdiction does not guarantee that we will be able to obtain or maintain regulatory approval in any other jurisdiction; but, a failure or delay in obtaining regulatory approval in one jurisdiction may have a negative effect on the regulatory approval process in others. For example, even if the FDA grants marketing approval of a product candidate, comparable regulatory authorities in foreign jurisdictions must also approve the manufacturing, marketing, and promotion of that product candidate in those countries. Approval procedures vary among jurisdictions and can involve requirements and administrative review periods different from those in the United States, including additional preclinical studies or clinical trials, as clinical studies
conducted in one jurisdiction may not be accepted by regulatory authorities in other jurisdictions. In many jurisdictions outside the United States, a product candidate must be approved for reimbursement before it can be approved for sale in that jurisdiction. In some cases, the price that we intend to charge for our products is also subject to approval.
Current and future legislation may increase the difficulty and cost for us to obtain marketing approval of and commercialize our initial or subsequent product candidates and affect the prices we may obtain.
In the United States and some foreign jurisdictions, there have been a number of legislative and regulatory changes and proposed changes regarding the healthcare system that could prevent or delay marketing approval for JAN101 or JAN123, restrict, or regulate post-approval activities and affect our ability to profitably sell JAN101 or JAN123. Legislative and regulatory proposals have been made to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical products. We do not know whether additional legislative changes will be enacted, or whether the FDA regulations, guidance, or interpretations will be changed, or what the impact of such changes on the marketing approvals of JAN101 or JAN123, if any, may be. In addition, increased scrutiny by Congress of the FDA’s approval process may significantly delay or prevent marketing approval, as well as subject us to more stringent product labeling and post-marketing testing and other requirements.
Any termination or suspension of, or delays in the commencement or completion of, any necessary studies of any of our product candidate for any indications could result in increased costs to us, delay or limit our ability to generate revenue and adversely affect our commercial prospects.
The commencement and completion of clinical studies can be delayed for a number of reasons, including delays related to: (i) the FDA or a comparable foreign regulatory authority failing to grant permission to proceed and placing the clinical study on hold; (ii) subjects for clinical testing failing to enroll or remain enrolled in our trials at the rate we expect; (iii) a facility manufacturing our initial or subsequent product candidates being ordered by the FDA or other government or regulatory authorities to shut down, temporarily or permanently, due to violations of cGMP requirements or other applicable requirements, or cross-contaminations of the product candidates in the manufacturing process; (iv) any changes to our manufacturing process that may be necessary or desired; (v) subjects choosing an alternative treatment for the indications for which we are developing our initial or subsequent product candidates, or participating in competing clinical studies; (vi) subjects experiencing severe or unexpected drug-related adverse effects; (vii) reports from clinical testing on similar technologies and products raising safety and/or efficacy concerns; (viii) third-party clinical investigators losing their licenses or permits necessary to perform our clinical trials, not performing our clinical trials on our anticipated schedule, or employing methods consistent with the clinical trial protocol, cGMP requirements, or other third parties not performing data collection and analysis in a timely or accurate manner; (ix) inspections of clinical study sites by the FDA, comparable foreign regulatory authorities, or IRBs finding regulatory violations that require us to undertake corrective action, result in suspension or termination of one or more sites or the imposition of a clinical hold on the entire study, or that prohibit us from using some or all of the data in support of our marketing applications; (x) third-party contractors becoming debarred or suspended or otherwise penalized by the FDA or other government or regulatory authorities for violations of regulatory requirements, in which case we may need to find a substitute contractor, and we may not be able to use some or any of the data produced by such contractors in support of our marketing applications; (xi) one or more IRBs refusing to approve, suspending, or terminating the study at an investigational site, precluding enrollment of additional subjects, or withdrawing its approval of the trial; (xii) reaching agreement on acceptable terms with prospective contract research organizations, or CROs, and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites; (xiii) deviations of the clinical sites from trial protocols or dropping out of a trial; (xiv) adding new clinical trial sites; (xv) the inability of the CRO to execute any clinical trials for any reason; and (xvi) government or regulatory delays or “clinical holds” requiring suspension or termination of a trial.
Product development costs for our initial and any subsequent product candidates will increase if we have delays in testing or approval or if we need to perform more or larger clinical studies than planned. Additionally, changes in regulatory requirements and policies may occur and we may need to amend study protocols to reflect these changes. Amendments may require us to resubmit our study protocols to the FDA, comparable foreign regulatory authorities, and IRBs for reexamination, which may impact the costs, timing, or successful completion of that study. If we experience delays in completion of, or if we, the FDA or other regulatory authorities, the IRB, or other reviewing entities, or any of our clinical study sites suspend or terminate any of our clinical studies of any of our product candidates, their commercial prospects may be materially harmed and our ability to generate product revenues will be delayed. Any delays in completing our clinical trials will increase our costs, slow our development and approval process, and jeopardize our ability to commence product sales and generate revenues. Any of these occurrences may harm our business, financial condition, and prospects significantly. In addition, many of the factors that cause, or lead to, termination or suspension of, or a delay in the commencement or completion of, clinical studies may also ultimately lead to the denial of regulatory approval of one of more of our product candidates. In addition, if one or more clinical studies are delayed, our competitors may be able to
bring competing products to market before we do, and the commercial viability of our affected product candidates could be significantly reduced.
Third-party coverage and reimbursement and health care cost containment initiatives and treatment guidelines may constrain our future revenues.
Our ability to market JAN101 or JAN123 successfully will depend in part on the level of reimbursement that government health administration authorities, private health coverage insurers, and other organizations provide for the cost of JAN101 or JAN123 and related treatments. Countries in which JAN101 or JAN123 is sold through reimbursement schemes under national health insurance programs frequently require that manufacturers and sellers of pharmaceutical products obtain governmental approval of initial prices and any subsequent price increases. In certain countries, including the United States, government-funded and private medical care plans can exert significant indirect pressure on prices. We may not be able to sell JAN101 or JAN123 profitably if adequate prices are not approved or coverage and reimbursement is unavailable or limited in scope. Increasingly, third-party payors attempt to contain health care costs in ways that are likely to impact the development of our product including: (i) failing to approve or challenging the prices charged for health care products; (ii) introducing reimportation schemes from lower priced jurisdictions; (iii) limiting both coverage and the amount of reimbursement for new therapeutic products; (iv) denying or limiting coverage for products that are approved by the regulatory agencies but are considered to be experimental or investigational by third-party payors; and (v) refusing to provide coverage when an approved product is used in a way that has not received regulatory marketing approval.
It is difficult and costly to protect our intellectual property rights, and we cannot ensure the protection of these rights.
Our success depends on successfully blocking others from developing and commercializing similar products. As repurposed drugs, our APIs have previously been approved for other indications, none of which currently represent a threat to our products, and therefore cannot be protected. We will rely on our method of use and oral formulation patents to protect our products, which may also put our products at risk from companies developing oral formulations using the same API for other indications. Even though our patents provide protection for specific uses, we will not be able to prevent other companies from developing the same APIs for other uses. If a similar dose, formulation, and route of administration is developed for another indication by a different company, we cannot guarantee that the product they market for the other indication will not be prescribed off-label by doctors or filled by pharmacists for use in indications our patents cover and that if less expensive, would not negatively affect our sales, if our products are ultimately approved by the FDA.
The degree of future protection afforded by the patent rights licensed to us is uncertain, because legal means afford only limited protection and may not adequately protect our rights, permit us to gain or keep our competitive advantage, or provide us with any competitive advantage at all. We cannot be certain that any patent application owned by a third party will not have priority over patent applications in which we hold license rights or that we will not be involved in interference, opposition or invalidity proceedings before United States or foreign patent offices.
Additionally, if the Licensors were to initiate legal proceedings against a third party to enforce a patent covering JAN101, the defendant could counterclaim that such patent is invalid and/or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity and/or unenforceability are commonplace. Grounds for a validity challenge include alleged failures to meet any of several statutory requirements, including lack of novelty, obviousness, or non-enablement. Grounds for unenforceability assertions include allegations that someone connected with prosecution of the patent withheld relevant information from the United States Patent and Trademark Office (the “PTO”) or made a misleading statement during prosecution. Third parties may also raise similar claims before administrative bodies in the United States or abroad, even outside the context of litigation. Such mechanisms include regarding-examination, post-grant review, and equivalent proceedings in foreign jurisdictions, e.g., opposition proceedings. Such proceedings could result in revocation or amendment of the Licensors’ patents in such a way that they no longer cover JAN101 or competitive products. The outcome following legal assertions of invalidity and unenforceability is unpredictable. With respect to validity, for example, we cannot be certain that there is no invalidating prior art, of which the Licensors and the patent examiner were unaware during prosecution. If a defendant were to prevail on a legal assertion of invalidity and/or unenforceability, we would lose at least part, and perhaps all, of the patent protection on any of our product candidates. Such a loss of patent protection would have a material adverse impact on our business.
In the future, we may rely on know-how and trade secrets to protect technology, especially in cases in which we believe patent protection is not appropriate or obtainable. However, know-how and trade secrets are difficult to protect. While we intend to require employees, academic collaborators, consultants, and other contractors to enter into confidentiality agreements, we may not be able adequately to protect our trade secrets or other proprietary or licensed information. Typically, research collaborators and scientific advisors have rights to publish data and information in which we may have rights. Enforcing a claim that a third party illegally obtained and is using any of our trade secrets is expensive and time
consuming, and the outcome is unpredictable. In addition, courts are sometimes less willing to protect trade secrets than patents. Moreover, our competitors may independently develop equivalent or better knowledge, methods, and know-how.
If we fail to obtain or maintain patent protection or trade secret protection for our product candidates or our technologies, third parties could use our proprietary information, which could impair our ability to compete in the market and adversely affect our ability to generate revenues and attain profitability.
It is difficult and costly to block others from developing similar products for other indications, and we cannot ensure that these products will not be less expensive and thus be prescribed off-label by physicians for use in our indications.
Our success depends on successfully blocking others from developing and commercializing similar products. As a repurposed drugs, our APIs have previously been approved for other indications and therefore cannot be protected. Although none of the approved indications for the API used in JAN101 represent a threat to JAN101, the API used in naltrexone has been formulated by compounding pharmacies to treat the indication ALT5 Sigma Corporation is pursuing and thus represents a real threat in commercialization of JAN123. We will rely on our method of use and oral formulation patents to protect JAN101 and JAN123, which may also put JAN101 and JAN123 at risk from companies developing oral formulations using the same API for other indications. Even though our patents provide protection for specific uses, we will not be able to prevent other companies from developing the same API for other uses. If a similar dose, formulation, and route of administration is developed for another indication by a different company, we cannot guarantee that the product they market for the other indication will not be prescribed off-label by doctors or filled by pharmacists for use in indications our patents cover and that if less expensive, would not negatively affect our sales, if JAN101 or JAN123 is ultimately approved by the FDA.
JAN101 or JAN123 may infringe the intellectual property rights of others, which could increase our costs and delay or prevent our development and commercialization efforts.
Our success depends in part on avoiding infringement of the proprietary technologies of others. The pharmaceutical industry has been characterized by frequent litigation regarding patent and other intellectual property rights. Identification of third-party patent rights that may be relevant to our proprietary technology is difficult because patent searching is imperfect due to differences in terminology among patents, incomplete databases, and the difficulty in assessing the meaning of patent claims. Additionally, because patent applications are maintained in secrecy until the application is published, we may be unaware of third-party patents that may be infringed by commercialization of JAN101, JAN123 or any subsequent product candidate. There may be certain issued patents and patent applications claiming subject matter that we may be required to license in order to research, develop, or commercialize any of our product candidates, and we do not know if such patents and patent applications would be available to license on commercially reasonable terms, or at all. Any claims of patent infringement asserted by third parties would be time-consuming and may: (i) result in costly litigation; (ii) divert the time and attention of our technical personnel and management; (iii) prevent us from commercializing a product candidate until the asserted patent expires or is held finally invalid or not infringed in a court of law; (iv) require us to cease or modify our use of the technology and/or develop non-infringing technology; or (v) require us to enter into royalty or licensing agreements.
Third parties may hold proprietary rights that could prevent JAN101 or JAN123 from being marketed. Any patent-related legal action against us claiming damages and seeking to enjoin commercial activities relating to any of our product candidates or our processes could subject us to potential liability for damages and require us to obtain a license to continue to manufacture or market JAN101, JAN123 or any subsequent product candidates. We cannot predict whether we would prevail in any such actions or that any license required under any of these patents would be made available on commercially acceptable terms, if at all. In addition, we cannot be sure that we could redesign JAN101, JAN123 or any subsequent product candidates or processes to avoid infringement, if necessary. Accordingly, an adverse determination in a judicial or administrative proceeding, or the failure to obtain necessary licenses, could prevent us from developing and commercializing JAN101, JAN123 or a subsequent product candidate, which could harm our business, financial condition, and results of operations.
We expect that there are other companies, including major pharmaceutical companies, working in the areas competitive to JAN101 or JAN123 that either have resulted, or may result, in the filing of patent applications that may be deemed related to our activities. If we were to challenge the validity of these or any issued United States patent in court, we would need to overcome a statutory presumption of validity that attaches to every issued United States patent. This means that, in order to prevail, we would have to present clear and convincing evidence as to the invalidity of the patent’s claims. If we were to challenge the validity of these or any issued United States patent in an administrative trial before the Patent Trial and Appeal Board in the PTO, we would have to prove that the claims are unpatentable by a preponderance of the evidence. There is no assurance that a jury and/or court would find in our favor on questions of infringement, validity, or enforceability. Even if we are successful, litigation could result in substantial costs and be a distraction to management.
GENERAL RISK FACTORS
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 the 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. Among the factors that may cause the market price of our common stock to fluctuate are the risks described in this “Risk Factors” section. In addition, the stock markets, in general, The Nasdaq Capital Market and the market for biopharmaceutical 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. Such litigation, even if unsuccessful, could be costly to defend and divert management’s attention and resources, which could further materially harm our financial condition and results of operations.
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.
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. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, demand for our Common Stock could decrease, which might cause our Common Stock price and trading volume to decline. In light of the unpredictability inherent in our business, our financial outlook commentary may differ from analysts’ expectations, which could cause volatility to the price of our Common Stock.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.

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ITEM 2. PROPERTIES
ITEM 2. PROPERTIES
As of December 28, 2024, our executive offices were located in Las Vegas, Nevada in a leased facility consisting of 800 square feet of office space. We believe our executive office space is sufficient to meet our current needs.
As of December 28, 2024, our Fintech segment’s offices were located in Montreal, Quebec, Canada in a leased facility consisting of approximately 2,100 square feet. We believe our Fintech segment's office space is sufficient to meet our current needs.

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ITEM 3. LEGAL PROCEEDINGS
ITEM 3. LEGAL PROCEEDINGS
The information in response to this item is included in Note 21, Commitments and Contingencies, to the Consolidated Financial Statements included in Part II, Item 8, of this Form 10-K.

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ITEM 4. MINE SAFETY DISCLOSURE
ITEM 4. MINE SAFETY DISCLOSURES
None.
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
ITEM 5. MARKET FOR OUR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information and Dividends
Our common stock trades under the symbol “ALTS” on The Nasdaq Capital Market. As of March 25, 2025, there were approximately 279 stockholders of record, which excludes stockholders whose shares were held in nominee or street name by brokers. We have no record of the number of holders of our common stock who hold their shares in “street name” with various brokers.
We have not paid dividends on our common stock and do not presently plan to pay dividends on our common stock for the foreseeable future.
Information concerning securities authorized for issuance under equity compensation plans is included in Part III, Item 12 of this report.

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ITEM 6. SELECTED FINANCIAL DATA
ITEM 6. SELECTED FINANCIAL DATA
Not applicable.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For a description of our significant accounting policies and an understanding of the significant factors that influenced our performance during the fiscal year ended December 28, 2024, this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (hereafter referred to as “MD&A”) should be read in conjunction with the consolidated financial statements, including the related notes, appearing in Part II, Item 8 of this 10-K for the fiscal year ended December 28, 2024.
Note about Forward-Looking Statements
This Form 10-K 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 the Securities Exchange Act of 1934, as amended, 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.
In addition, the foregoing factors may generally affect our business, results of operations and financial position. Forward-looking statements speak only as of the date the statements were made. We do not undertake and specifically decline any obligation to update any forward-looking statements. Any information contained on our website www.alt5sigma.com or any other websites referenced in this Form 10-K are not part of this Form 10-K.
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. In addition, through our sale of subsidiaries ARCA Recycling, Connexx, and ARCA Canada and the assets of GeoTraq Inc., we have exited these legacy businesses; Consequently, the results for these businesses are reported as discontinued operations for the years ended December 28, 2024 and December 30, 2023.
We operate 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.
•Corporate and Other: Our Corporate and Other segment consists of certain corporate general and administrative costs.
Reporting Period. We report on a 52- or 53-week fiscal year. Our 2024 fiscal year ended on December 28, 2024 (“fiscal 2024”). Our 2023 fiscal year ended on December 30, 2023 (“fiscal 2023”).
Application of Critical Accounting Policies
Our discussion of the financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in conformity with accounting principles generally accepted in the United States. The preparation of our consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosure of any contingent assets and liabilities at the date of the financial statements. Management regularly reviews its estimates and assumptions, which are
based on historical factors and other factors believed to be relevant under the circumstances. Actual results may differ from these estimates under different assumptions, estimates or conditions.
Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties and potentially result in materially different results under different assumptions and conditions. Critical accounting policies include intangible impairment under ASC 350, revenue recognition under ASC 606, and going concern under ASC 205.
Results of Operations
The following table sets forth certain statement of operations items from continuing and discontinued operations and as a percentage of revenue, for the periods indicated (in $000’s):
Fiscal Year Ended
December 28, 2024 Fiscal Year Ended
December 30, 2023
Statement of Operations Data:
Revenue $ 12,532 $ -
Cost of revenue 6,238 -
Gross profit 6,294 -
Selling, general and administrative expenses 13,856 4,746
Impairment charges - 15,100
Operating loss (7,562) (19,846)
Interest (expense) income, net (879) 2,250
Gain on litigation settlement 374 -
Unrealized loss on marketable securities (1,058) (926)
Other income, net (161) 998
Net loss before provision for income taxes (9,286) (17,524)
Income tax benefit (3,041) (429)
Net loss income from continuing operations (6,245) (17,095)
Income from discontinued operations - 10,254
Income tax provision for discontinued operations - 971
Net income from discontinued operations - 9,283
Net loss $ (6,245) $ (7,812)
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):
Fiscal Year Ended
December 28, 2024 Fiscal Year Ended
December 30, 2023
Net
Revenue Percent
of Total Net
Revenue Percent
of Total
Revenue
Fintech $ 12,532 100 % $ - - %
Biotech - - % - - %
Corporate and other - - % - - %
Discontinued operations - - % 3,795 100 %
Total revenue $ 12,532 100 % $ 3,795 100 %
Fiscal Year Ended
December 28, 2024 Fiscal Year Ended
December 30, 2023
Gross
Profit Gross
Profit % Gross
Profit Gross
Profit %
Gross Profit
Fintech $ 6,294 50 % $ - - %
Biotech - - % - - %
Corporate and other - - % - - %
Discontinued operations - - % (197) (5) %
Total gross profit $ 6,294 50 % $ (197) (5) %
Revenue
Revenue increased by approximately $8.8 million for the fiscal year ended December 28, 2024, as compared to the year ended December 30, 2023. The increase is due to the acquisition of ALT5 Subsidiary during May 2024, partially offset by no revenue from discontinued operations for the fiscal year ended December 28, 2024.
Gross Profit
Gross profit increased by approximately $6.5 million for the fiscal year ended December 28, 2024, as compared to the year ended December 30, 2023. The increase is due to the acquisition of ALT5 Subsidiary during May 2024, partially offset by no revenue from discontinued operations for the fiscal year ended December 28, 2024.
Selling, General and Administrative Expense
Selling, general and administrative expenses from continuing operations increased by approximately $7.6 million for the fiscal year ended December 28, 2024, as compared to the year ended December 30, 2023, primarily due to the acquisition of ALT5 Subsidiary during May 2024, increased amortization costs relating to the Soin intangibles in our Biotech segment, and increased stock-based compensation expense related to grants of RSU's, as well as costs for professional services in our Corporate and Other segment.
Impairment Charges
Impairment charges recorded during the fiscal year ended December 30, 2023 were approximately $15.1 million. These charges relate to the full impairment of the VM7 and SPYR notes receivable of approximately $5.3 million and $9.8 million, respectively (See Note 9 of the Consolidated Financial Statements). No impairment charges were recorded during the fiscal year ended December 28, 2024.
Interest Income (Expense), net
Interest expense, net, was approximately $880,000 for the fiscal year ended December 28, 2024, as compared to interest income, net, of approximately $2.3 million for the year ended December 30, 2023. The change was primarily due to no longer accreting the discounts in connection with the promissory note with SPYR and the receivable from VM7,
promissory notes entered into during the year ended December 28, 2024, as well as the acquisition of ALT5 Subsidiary during May 2024.
Gain on Sale of the Recycling Subsidiaries
During the fiscal year ended December 30, 2023, we recorded a gain on the sale of the Recycling Subsidiaries of approximately $12.1 million from discontinued operations. See Note 4 of the Consolidated Financial Statements.
Unrealized Loss on Marketable Securities
Unrealized loss on marketable securities for the fiscal year ended December 28, 2024 was approximately $1.1 million, as compared to a loss of approximately $925,000 for the fiscal year ended December 30, 2023. An unrealized gain or loss on marketable securities is recorded to mark to fair value securities received in connection to the sale of GeoTraq.
Results of Operations by Segment
The following table sets forth the results of operations by segment (in $000’s):
Fiscal Year Ended December 28, 2024 Fiscal Year Ended December 30, 2023
Fintech Biotech Corporate and other Discontinued Operations Total Fintech Biotech Corporate and other Discontinued Operations Total
Revenue $ 12,532 $ - $ - $ - $ 12,532 $ - $ - $ - $ 3,795 $ 3,795
Cost of revenue 6,238 - - - 6,238 - - - 3,992 3,992
Gross profit 6,294 - - - 6,294 - - - (197) (197)
Selling, general and administrative expense 5,389 2,148 6,206 - 13,743 - 1,531 3,215 1,467 6,213
Impairment charges - - - - - - - 15,100 - 15,100
Gain on sale of ARCA - - - - - - - - (12,102) (12,102)
Operating (loss) income 905 (2,148) (6,206) - (7,449) - (1,531) (18,315) 10,438 (9,408)
Fintech Segment
Our Fintech segment consists of ALT5 Subsidiary, which was acquired during May 2024. Revenue for the fiscal year ended December 28, 2024 was approximately $12.5 million, and gross margin percentage was 50.2%. Operating income for the fiscal year ended December 28, 2024 was approximately $900,000.
Biotech Segment
Our Biotech segment generated no revenue for the fiscal year ended December 28, 2024. Selling, general and administrative expenses increased primarily due to increased amortization costs relating to the Soin intangibles.
Corporate and Other Segment
Our Corporate and Other segment generated no revenue for the fiscal year ended December 28, 2024. Selling, general and administrative expenses increased primarily due to increased stock-based compensation expense related to grants of RSU's, as well as increased costs for professional services.
Discontinued Operations
Discontinued operations consist of our Recycling segment, which was disposed of effective March 1, 2023. We had no discontinued operations for the fiscal year ended December 28, 2024.
Liquidity and Capital Resources
Overview
The accompanying financial statements have been prepared under the assumption that we will continue as a going concern. Such assumption contemplates the realization of assets and satisfaction of liabilities in the normal course of business.
As of December 28, 2024, our cash on hand was approximately $7.2 million. We intend to raise funds to support future development of JAN 123 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.
Our ability to continue as a going concern is dependent upon the success of future capital raises or structured settlements and cash flows from the acquisition of ALT5 Subsidiary to fund the required testing to obtain FDA approval of JAN 123, as well as to fund our day-to-day operations. The accompanying financial statements do not include any adjustments that might be necessary should we be unable to continue as a going concern. While we will actively pursue these additional sources of financing, management cannot make any assurances that such financing will be secured.
Cash Flows
During the fiscal year ended December 28, 2024, cash provided by operations was approximately $1.8 million, compared to cash provided by operations of approximately $855,000 during the fiscal year ended December 30, 2023. Cash provided by operating activities from discontinued operations during the fiscal year ended December 30, 2023 was approximately $2.3 million. We had no discontinued operations during the fiscal year ended December 28, 2024. The change in cash was primarily due to results of operations as discussed above.
Cash provided by investing activities was approximately $5.9 million for the fiscal year ended December 28, 2024, compared to cash used in investing activities of approximately $156,000 for the fiscal year ended December 30, 2023. Cash provided by investing activities for the fiscal year ended December 28, 2024 was related to cash acquired in the acquisition of ALT5 Subsidiary, while cash used in investing activities for the fiscal year ended December 30, 2023 was all associated with discontinued operations and was related to purchases of property and equipment.
Cash provided by financing activities was approximately $6.1 million for the fiscal year ended December 28, 2024, and relates to proceeds from notes payable, proceeds from equity financing and warrants exercised, and proceeds from related party notes payable, partially offset by payments on notes payable, as well as payments on related party notes payable. Cash provided by financing activities was approximately $777,000 for the fiscal year ended December 30, 2023. Cash used in financing activities from discontinued operations for the fiscal year ended December 30, 2023 was approximately $2.2 million and was primarily due to the repayment of debt obligations in the amount of approximately $7.3 million, partially offset by proceeds from the issuance of debt obligations of approximately $5.1 million.
Sources of Liquidity
We acknowledge that we continue to face a challenging competitive environment as we continue to focus on our overall profitability, including managing expenses. We reported a net loss of approximately $6.2 million for the fiscal year ended December 28, 2024, and net loss from continuing operations of approximately $17.1 million for the fiscal year ended December 30, 2023, for the reasons discussed above. Additionally, the Company has total current assets of approximately $35.0 million and total current liabilities approximately of $40.9 million, resulting in a net negative working capital of approximately $5.9 million. Cash provided operations was approximately $1.0 million.
In Item 1A. Risk Factors, management has addressed and evaluated the risk factors that could materially and adversely affect the entity’s business, financial condition and results of operations, cash flows, and liquidity. The Company has determined that the risk factors do not materially affect the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued.
Based on the above, management has concluded that the Company is not aware and did not identify any other conditions or events that would cause the Company to not be able to continue business as a going concern for the next 12 months.
Future Sources of Cash; New Acquisitions, Products and Services
We acquired ALT5 Subsidiary during May 2024, as discussed above. We may require additional debt financing and/or capital to finance new acquisitions or consummate other strategic investments in our business. We currently expect that the biotechnology subsidiary transaction discussed above will allow us to finance our Phase IIb clinical trials, No assurance can be given any financing obtained may not further dilute or otherwise impair the ownership interest of our existing stockholders or our ownership interest in the to-be-effectuated biotechnology subsidiary.
Off Balance Sheet Arrangements
At December 28, 2024, we had no off-balance sheet arrangements, commitments or guarantees that require additional disclosure or measurement.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of December 28, 2024, we did not participate in any market risk-sensitive commodity instruments for which fair value disclosure would be required. We believe we are not subject in any material way to other forms of market risk, such as foreign currency exchange risk or foreign customer purchases or commodity price risk.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Description Page
Reports of Independent Registered Public Accounting Firm
Report of Hudgens CPA, PLLC (PCAOB ID 6849)
Consolidated Financial Statements
Consolidated Balance Sheets as of December 28, 2024 and December 30, 2023
Consolidated Statements of Operations and Comprehensive Loss for the fiscal years ended December 28, 2024 and December 30, 2023
Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for the fiscal years ended December 28, 2024 and December 30, 2023
Consolidated Statements of Cash Flows for the fiscal years ended December 28, 2024 and December 30, 2022
Notes to Consolidated Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
and Stockholders of ALT5 Sigma Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of ALT5 Sigma Corporation (the Company) as of December 28, 2024 and December 30, 2023, and the related consolidated statements of operations and comprehensive loss, stockholders’ equity (deficit), and cash flows for each of the the years in the two-year period ended December 28, 2024, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 28, 2024 and December 30, 2023, and the results of its operations and its cash flows for each of the years in the two-year period December 28, 2024, in conformity with accounting principles generally accepted in the United States of America.
Substantial Doubt About the Company’s Ability to Continue as a Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has negative working capital, an accumulated deficit, a history of significant operating losses from continuing operations, and a history of negative operating cash flow. These factors raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Valuation of Intangible Assets associated with the business combination in accordance with ASC 805
Description of the matter:
The Company closed its acquisition of the assets of its ALT5 Subsidiary on May 14, 2024. The Company accounted for the acquisitions under the acquisition method of accounting for business combination. Accordingly, the purchase price was primarily allocated to the assets acquired based on their respective fair values, including related intangible assets. The fair value determination of the intangible assets required management to make significant assumptions related to the forecasted
revenue growth rates and the selection of the discount rates. We identified the intangible assets for the business combination as a critical audit matter because of the significant assumptions management makes to fair value these assets. This required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists, when performing audit procedures to evaluate the reasonableness of management’s assumptions related to the revenue growth rates and the selection of the discount rates utilized to value these intangible assets.
How we addressed the matter in our audit:
Our audit procedures related to the revenue growth rates and the selection of the assumptions for the intangible assets acquired included the following, among others:
•We assessed the reasonableness of the revenue growth rates by comparing the assumptions used in the projections to external market sources, historical data, and results from other areas of the audit.
•We performed qualitative and quantitative analyses to assess the assumptions that would significantly impact the overall valuation of the intangible assets acquired.
•We evaluated the completeness of the financial statement presentation and disclosure of the acquisitions.
/s/ Hudgens CPA, PLLC
www.hudgenscpas.com
We have served as the Company’s auditor since 2023.
Houston, Texas
March 28, 2025
ALT5 SIGMA CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
December 28, 2024 December 30, 2023
Assets
Cash and cash equivalents $ 7,177 $ 5
Trade and other receivables, net 2,530 266
Digital assets receivable 23,776 -
Prepaid expenses and other current assets 1,518 75
Total current assets 35,001 346
Property and equipment, net 1,170 -
Right of use assets 121 -
Intangible assets, net 34,430 17,846
Marketable securities - 286
Deposits and other assets - 9
Goodwill 11,714 -
Total assets $ 82,436 $ 18,487
Liabilities, Mezzanine Equity, and Stockholders' Equity (Deficit)
Liabilities:
Accounts payable $ 3,231 $ 2,272
Accrued liabilities 2,553 3,633
Digital assets payable 30,918 -
Due to Soin 2,850 -
Convertible debentures 563 -
Operating lease liabilities 10 -
Related party notes payable and advances 812 -
Total current liabilities 40,937 5,905
Deferred income taxes, net 1,041 639
Related party notes payable - 707
Notes payable 11,570 -
Operating lease liabilities 113 -
Other noncurrent liabilities 108 34
Total liabilities 53,769 7,285
Commitments and Contingencies (Note 21)
Mezzanine equity
Convertible preferred stock, series S - par value $0.001 per share 200,000 authorized, 100,000 shares issued and outstanding at December 28, 2024 and December 30, 2023
3,856 14,510
Stockholders' equity:
Convertible preferred stock, series A-1 - par value $0.001 per share 2,000,000 authorized, 23,480 and 193,730 shares issued and outstanding at December 28, 2024 and December 30, 2023, respectively
- -
Preferred stock, series B - par value $0.001 per share, 34,250 authorized, 34,207 and 0 shares issued and outstanding at December 28, 2024 and December 30, 2023, respectively
8,552 -
Convertible preferred stock, series I - par value $0.001 per share, 2,000,000 authorized, 17,000 and 0 shares issued and outstanding at December 28, 2024 and December 30, 2023, respectively
- -
Preferred stock, series M - par value $0.001 per share, 3,200 authorized, 3,200 and 0 shares issued and outstanding at December 28, 2024 and December 30, 2023, respectively
- -
Convertible Preferred stock, series Q - par value $0.001 per share, 2,000,000 authorized, 925,212 and 0 shares issued and outstanding at December 28, 2024 and December 30, 2023, respectively
1,321 -
Convertible preferred stock, series S - par value $0.001 per share, 200,000 authorized, 100,000 and 100,000 shares issued and outstanding at December 28, 2024 and December 30, 2023, respectively
7,993 -
Convertible preferred stock, series V - par value $0.001 per share, 125,000 authorized, 5,000 shares and 0 issued and outstanding at December 28, 2024 and December 30, 2023, respectively
- -
Common stock, par value $0.001 per share, 200,000,000 shares authorized, 15,417,693 and 2,827,410 shares issued and outstanding at December 28, 2024 and at December 30, 2023, respectively
9 3
Additional paid in capital 62,207 47,323
Accumulated deficit (56,879) (50,634)
Accumulated other comprehensive loss (2,317) -
Equity attributable to ALT5 Sigma Corporation shareholders 20,886 (3,308)
Noncontrolling interest 3,925 -
Total stockholders' equity 24,811 (3,308)
Total liabilities, mezzanine equity, and stockholders' equity $ 82,436 $ 18,487
The accompanying notes are an integral part of these consolidated financial statements.
ALT5 SIGMA CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Dollars in thousands, except per share amounts)
Fiscal Years Ended
December 28, 2024 December 30, 2023
Revenues $ 12,532 $ -
Cost of revenues 6,238 -
Gross profit 6,294 -
Operating expenses:
Selling, general and administrative expenses 13,856 4,746
Impairment charges - 15,100
Total operating expenses 13,856 19,846
Operating loss (7,562) (19,846)
Other income:
Interest (expense) income, net (879) 2,250
Realized gain on exchange transactions 374 -
Unrealized loss on marketable securities (1,058) (926)
Other income, net (161) 998
Total other (expense) income, net (1,724) 2,322
Loss before benefit from income taxes (9,286) (17,524)
Income tax benefit (3,041) (429)
Net loss from continuing operations (6,245) (17,095)
Income from discontinued operations - 10,254
Income tax provision for discontinued operations - 971
Net income from discontinued operations - 9,283
Net loss $ (6,245) $ (7,812)
(Loss) income per share:
Net loss per share from continuing operations, basic and diluted $ (0.56) $ (4.27)
Net income per share from discontinued operations, basic $ - $ 2.32
Net income per share from discontinued operations, diluted $ - $ 2.09
Net loss per share, basic and diluted $ (0.56) $ (1.95)
Weighted average common shares outstanding:
Basic 11,148,493 4,005,334
Diluted 11,148,493 4,444,361
The accompanying notes are an integral part of these consolidated financial statements.
ALT5 SIGMA CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(Dollars in thousands)
Series A-1 Preferred Series S-1 Preferred Series B Preferred Series I Preferred Series M Preferred Series Q Preferred Series V Preferred Common Stock Additional
Paid in
Capital Accumulated
Deficit Accumulated
Other
Comprehensive
Deficit Noncontrolling Interest Total
Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount
Balance, December 31, 2022 222,588 $ - 100,000 $ - - $ - - $ - - $ - - $ - - $ - 3,150,230 $ 2 $ 45,748 $ (42,822) $ (621) - $ 2,307
Other comprehensive loss - - - - - - - - - - - - - - - - - - 621 - 621
Common stock issued for equity financing - - - - - - - - - - - - - - 779,000 1 792 - 793
Share based compensation - - - - - - - - - - - - - - - - 14 - - - 14
Series A-1 preferred converted for legal settlement (27,353) - - - - - - - - - - - - - 547,069 - 510 - - - 510
Series A-1 preferred forfeited (1,505) - - - - - - - - - - - - - - - - - - -
Common stock issued for warrants exercised - - - - - - - - - - - - - - 481,348 - 259 - - - 259
Net loss - - - - - - - - - - - - - - - - - (7,812) - - (7,812)
Balance, December 30, 2023 193,730 - 100,000 - - - - - - - - - - - 4,957,647 3 47,323 (50,634) - - (3,308)
Reclassification of Series S S-1 Preferred Stock to liability - - - - - - - - - - - - - - - - (339) - - - (339)
Reclassification of Series S S-1 Preferred Stock to permanent equity - - - - - - - - - - - - - - - - - - - - 7,993
Share based compensation - - - - - - - - - - - - - - 1,250,027 - 1,656 - - - 1,656
Common stock issued for equity financing - - - - - - - - - - - - - - 1,030,478 2 1,031 - - - 1,033
Common stock issued for consulting agreement - - - - - - - - - - - - - - 477,923 2 1,020 - - - 1,022
Common stock issued in lieu of notes payable obligation - - - - - - - - - - - - - - 2,031,595 2 2,022 - - - 2,024
Common stock issued for acquisition of Alt5 Subsidiary - - - - - - - - - - - - - - 1,799,115 - 7,447 - - - 7,447
Preferred stock issued for acquisition of Alt5 Subsidiary - - - - 34,207 8,552 17,000 - 3,200 - - - - - - - - - - - 8,552
Conversion of Series A-1 Preferred to common stock (170,250) - - - - - - - - - - - - - 3,055,000 - - - - - -
Preferred stock issued for property and equipment - - - - - - - - - - - - 5,000 - - - - - - - -
Common stock issued for property and equipment - - - - - - - - - - - - - - 300,000 - 1,170 - - - 1,170
Preferred stock issued for Qoden asset acquisition - - - - - - - - - - 925,212 1,321 - - - - - - - - 1,321
Common stock issued for prepaid interest - - - - - - - - - - - - - - 225,000 - 380 - - - 380
Common stock issued for warrants exercised - - - - - - - - - - - - - - 290,908 - 497 - - - 497
Foreign currency adjustment - - - - - - - - - - - - - - - - - - (2,317) - (2,317)
Net loss - - - - - - - - - - - - - - - - - (6,245) - 3,925 (2,320)
Balance, December 28, 2024 23,480 $ - 100,000 $ - 34,207 $ 8,552,000 17,000 $ - 3,200 $ - 925,212 $ 1,321,000 5,000 $ - 15,417,693 $ 9 $ 62,207 $ (56,879) $ (2,317) $ 3,925 $ 24,811
The accompanying notes are an integral part of these consolidated financial statements.
ALT5 SIGMA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Fiscal Years Ended
December 28, 2024 December 30, 2023
OPERATING ACTIVITIES:
Net loss from continuing operations $ (6,245) $ (17,095)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization 3,402 1,452
Change in reserve for uncollectible accounts 254 -
Accretion of note receivable discount - (1,223)
Stock based compensation expense 1,657 14
Bad debt expense - 617
Noncash expense for consulting services 271 -
Related party notes issued for shared services 800 -
Write off of VM7 note receivable - 5,320
Write off of SPYR note receivable - 9,780
Unrealized loss on marketable securities 1,058 926
Amortization of right-of-use assets 32 -
Unrealized gain on digital assets - -
Change in deferred income taxes (3,229) 444
Changes in assets and liabilities:
Accounts receivable 1,876 (367)
Digital assets receivable (14,694) -
Prepaid expenses and other current assets 780 320
Other assets 12 8
Accounts payable and accrued expenses 1,648 (1,052)
Digital assets payable 14,155 -
Operating cash flows provided by discontinued operations - 2,319
Net cash provided by operating activities 1,777 1,463
INVESTING ACTIVITIES:
Cash acquired in ALT5 Subsidiary acquisition 5,853 -
Investing cash flows used in discontinued operations - (155)
Net cash provided by (used in) investing activities 5,853 (155)
FINANCING ACTIVITIES:
Proceeds from issuance of notes payable 7,237 -
Payments on related party notes payable (248) -
Proceeds from the issuance of related party note payable 603 -
Proceeds from equity financings, net 851 792
Warrants exercised 497 259
Payments on short term notes payable (2,847) (274)
Financing cash flows used in discontinued operations - (2,212)
Net cash provided by (used in) financing activities 6,093 (1,435)
Effect of changes in exchange rate on cash and cash equivalents (6,551) 17
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 7,172 (110)
CASH AND CASH EQUIVALENTS, beginning of period 5 115
LESS CASH OF DISCONTINUED OPERATIONS, end of period - $ -
CASH AND CASH EQUIVALENTS OF CONTINUING OPERATIONS, end of period $ 7,177 $ 5
Fiscal Years Ended
December 28, 2024 December 30, 2023
Supplemental cash flow disclosures:
Noncash recognition of new leases $ 121 $ -
Interest paid $ 296 $ 133
Income tax refunds received, net $ 17 $ -
Noncash financing and investing activities:
Stock issued for the acquisition of Alt5 Subsidiary $ 16,000 $ -
Common stock issued for consulting services 853 -
Common stock issued for liability obligations 367 -
Notes payable converted to common stock 1,660 -
Common stock issued for interest obligations 380 -
Common stock issued for property and equipment 1,170 -
Preferred stock issued for intangible assets 1,321 -
The accompanying notes are an integral part of these consolidated financial statements.
ALT5 SIGMA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1: Background and Basis of Presentation
The accompanying consolidated financial statements include the accounts of ALT5 Sigma Corporation, a Nevada corporation, and its subsidiaries (collectively, the “Company” or “ALT5”). Effective July 15, 2024, the Company changed its corporate name from “JanOne Inc.” to “ALT5 Sigma Corporation,” and also changed its Nasdaq common stock ticker symbol from “JAN” to “ALTS”. The corporate name change was effected through a parent/subsidiary short-form merger of ALT5 Sigma Corporation, the Company’s wholly-owned Nevada subsidiary formed solely for the purpose of effectuating the name change), whereby it merged with and into the Company, with the Company being the surviving entity, albeit with its new name.
The Company had three operating segments - Fintech, Biotechnology, and Corporate and Other. In connection with the sale of ARCA Recycling, Inc. (“ARCA Recycling”), the accounts for the Recycling segment have been presented as discontinued operations in the accompanying consolidated financial statements (See Note 4).
Fintech
On May 15, 2024, the Company acquired ALT5 Sigma, Inc. (“ALT5 Subsidiary”). ALT5 Subsidiary is a fintech company that provides next generation blockchain-powered technologies to enable a migration to a new global financial paradigm. ALT5 Subsidiary, through its respective subsidiaries, offers two main platforms to its customers: “ALT5 Pay” and “ALT5 Prime.” ALT5 Pay is a crypto-currency payment gateway that enables registered and approved global merchants to accept and make crypto-currency payments or to integrate the ALT5 Pay payment platform into their application or operations using the plugin with WooCommerce and or ALT5 Pay’s checkout widgets and APIs. Merchants have the option to convert to fiat currency (US Dollars, Canadian Dollars, Euros, and British Pounds Sterling) automatically or to receive their payment in digital assets (see Note 3).
Biotechnology
During September 2019, ALT5 Sigma Corporation, through its biotechnology segment, broadened its business perspectives to become a pharmaceutical company focused on finding treatments for conditions that cause severe pain and bringing to market drugs with non-addictive pain-relieving properties. Effective December 28, 2022, the Company acquired Soin Therapeutics LLC, a Delaware limited liability company (“STLLC”), and its product, a patent-pending, novel formulation of low-dose naltrexone, (“JAN123”). The product is being developed for the treatment of Complex Regional Pain Syndrome (CRPS), an indication that causes severe, chronic pain generally affecting the arms or legs. At present, there are no truly effective treatments for CRPS. Because of the relatively small number of patients afflicted with CRPS, the FDA has granted Orphan Drug Designation for any product approved for treatment of CRPS. This designation will provide the Company with tax credits for its clinical trials, exemption of user fees, and the potential of seven years of market exclusivity following approval. In addition, development of orphan drugs currently also involves smaller trials and quicker times to approval, given the limited number of patients available to study. However, there can be no assurance that the product will receive FDA approval or that it will result in material sales. In that regard, 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 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.
Recycling
The Recycling Subsidiaries constituted the Company’s Recycling segment and provided turnkey recycling services for electric utility energy efficiency programs in the United States. ARCA Recycling and ARCA Canada recycled major household appliances in North America by providing turnkey appliance recycling and replacement services for utilities and other sponsors of energy efficiency programs. Connexx provided call center services for ARCA Recycling and ARCA Canada. On March 9, 2023, retroactive to March 1, 2023, the Company entered into a Stock Purchase Agreement (the “Recycling Purchase Agreement” with VM7 Corporation (“VM7”), under which it agreed to acquire all of the outstanding equity interests of the Recycling Subsidiaries. The principal of VM7 is Virland A. Johnson, our Chief Financial Officer. The sale of all of the outstanding equity interests of the Recycling Subsidiaries to VM7 under the Recycling Purchase Agreement was consummated simultaneously with the execution of the Recycling Purchase Agreement (see Note 4). The Company’s Board of Directors unanimously approved the Recycling Purchase Agreement and the Disposition Transaction. In connection with the disposition of the Recycling Subsidiaries, accounts for the Recycling segment have been presented as discontinued operations in the accompanying consolidated financial statements (See Note 4).
ALT5 SIGMA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Corporate and Other
Our Corporate and Other segment consists of certain corporate general and administrative costs.
The Company reports on a 52- or 53-week fiscal year. The Company's 2024 fiscal year (“2024”) ended on December 28, 2024, and our fiscal year (“2022”) ended on December 30, 2023.
Going concern
The accompanying financial statements have been prepared under the assumption that the Company will continue as a going concern. Such assumption contemplates the realization of assets and satisfaction of liabilities in the normal course of business, however, the issues described below raise substantial doubt about the Company’s ability to do so.
The Company currently faces a challenging competitive environment and is focused on improving its overall profitability, which includes managing expenses. The Company reported a net loss from continuing operations of approximately $6.2 million for the year ended December 28, 2024, and net loss from continuing operations of approximately $17.1 million for the fiscal year ended December 30, 2023. Additionally, as of December 28, 2024, the Company has total current assets of approximately $35.0 million and total current liabilities of approximately $40.9 million resulting in a net negative working capital of approximately $5.9 million. Cash provided by operations was approximately $1.0 million.
The Company intends to raise funds to support future development of JAN 123 and JAN 101 and through a combination of cash flows derived from its acquisition of ALT5 (see Note 3), capital raises, and/or structured arrangements. However, the success of such funding cannot be assured. We currently expect that the biotechnology subsidiary transaction discussed above will allow us to finance our Phase III clinical trial for JAN123. No assurance can be given any financing obtained may not further dilute or otherwise impair the ownership interest of our existing stockholders or our ownership interest in the to-be-effectuated biotechnology subsidiary. The short-term intended result of that transaction 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.
Note 2: Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.
Financial Statement Reclassification
Certain account balances from prior periods have been reclassified in these consolidated financial statements to conform to current period classifications.
Use of Estimates
The preparation of the consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumption that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Significant estimates made in connection with the accompanying consolidated financial statements include the fair values in connection with the GeoTraq promissory note, analysis of other intangibles and long-lived assets for impairment, valuation allowance against deferred tax assets, lease terminations, and estimated useful lives for intangible assets and property and equipment.
Financial Instruments
Financial instruments consist primarily of cash equivalents, trade and other receivables, notes receivables, and obligations under accounts payable, accrued expenses and notes payable. The carrying amounts of cash equivalents, trade receivables and other receivables, accounts payable, accrued expenses and short-term notes payable approximate fair value because of the short maturity of these instruments. The fair value of the long-term debt is calculated based on interest rates available for debt with terms and maturities similar to the Company’s existing debt arrangements, unless quoted market prices were
ALT5 SIGMA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
available (Level 2 inputs). The carrying amounts of long-term debt at December 28, 2024 and December 30, 2023 approximate fair value.
Cash and Cash Equivalents
Cash and cash equivalents consist of highly liquid investments with a maturity of three months or less at the time of purchase. Fair value of cash equivalents approximates carrying value.
Digital Assets and other Receivables
Digital assets and other receivables are the Company’s digital assets and its customer prepayments in the form of digital assets. The Company holds all digital assets in secure non-custodial wallets through the wallet services from Fireblocks. As of December 28, 2024, the outstanding balance of digital assets and other receivables was approximately $23.8 million.
Other Receivables and Allowance for Doubtful Accounts
The Company carries unsecured other receivables at the original invoice amount less an estimate made for doubtful accounts based on a monthly review of all outstanding amounts. Management determines the allowance for doubtful accounts by regularly evaluating receivables based on current economic conditions. The Company writes off receivables when it deems them to be uncollectible. The Company records recoveries of receivables previously written off when payment is received. The Company considers a receivable to be past due if any portion of the receivable balance is outstanding for more than ninety days. The Company does not charge interest on past due receivables. The Company had no allowance for doubtful accounts for the years ended December 28, 2024 and December 30, 2023.
The following table details the Company's trade and other receivables as of December 28, 2024 and December 30, 2023 (in $000’s):
December 28,
2024 December 30,
2023 December 31, 2022
Other receivables 2,530 266 106
Trade and other receivables, net $ 2,530 $ 266 $ 106
As of December 28, 2024, other receivables includes approximately $2.2 million in subscriptions receivable (see Note 18).
Intangible Assets
The Company’s intangible assets consist of customer relationship intangibles, favorable leases, trade names, licenses for the use of internet domain names, Universal Resource Locators, or URL’s, software, patents, and marketing and technology related intangibles. Upon acquisition, estimates are made in valuing acquired intangible assets, which include but are not limited to, future expected cash flows from customer contracts, customer lists, and estimating cash flows from projects when completed; tradename and market position, as well as assumptions about the period of time that customer relationships will continue; and discount rates. Management's estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from the assumptions used in determining the fair values. All intangible assets are capitalized at their original cost and amortized over their estimated useful lives as follows: domain name and marketing - 3-to-20 years; software - 3-to-5 years; technology intangibles - 7 years; customer relationships - 7-to-15 years.
Digital Assets and other Payables
Digital assets and other payables are liabilities that represent the Company’s obligation to deliver the settlement of transactions in the form of digital assets and or cash. The Company safeguards these digital assets and cash for customers and is obligated to safeguard them from loss, theft, or other misuse. The Company recognizes digital assets and other payables, on initial recognition and at each reporting date, at fair value of the digital assets. Any loss, theft, or other misuse would impact the measurement of digital assets and other payables. As of December 28, 2024, the outstanding balance of digital assets and other payables was approximately $30.9 million, of which approximately $23.8 million was digital assets and $7.1 million was cash deposits.
ALT5 SIGMA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Revenue Recognition
Revenue recognition applies to the Company’s Fintech segment only, as the Company’s Biotech segment has not recognized revenue to date. Revenue is recognized under Topic 606 in a manner that reasonably reflects the delivery of its services and products to customers in return for expected consideration and includes the following elements:
1.Executed contracts with the Company’s customers that it believes are legally enforceable;
2.Identification of performance obligations in the respective contract;
3.Determination of the transaction price for each performance obligation in the respective contract;
4.Allocation of the transaction price to each performance obligation; and
5.Recognition of revenue only when the Company satisfies each performance obligation.
Fintech Revenue
The five elements above, as applied to each of the Fintech segment's revenue categories, is summarized below:
1.Product sales - revenue is recognized at the time of sale of equipment to the customer.
2.Service sales - revenue is recognized based on when the service has been provided to the customer.
The Company’s service is comprised of a single performance obligation to buy and sell or convert digital assets to currencies. That is, the Company is the counter party to all transactions between customers and liquidity providers and presents revenue for the fees earned on a net basis.
The Company is acting as principal in all transactions, and control the digital assets being provided before it is transferred to the buyer, and has risk related to the digital assets, and is responsible for the fulfillment of the digital asset transactions. The Company sets the price for the digital assets by aggregating prices from several liquidity providers and displays them on the Company’s platform. As a result, the Company acts as a price discovery service and acts as a principal facilitating the ability for a customer to purchase or sell digital assets.
The Company considers its performance obligation satisfied, and recognizes revenue, at the point in time the transaction is processed. Contracts with customers are usually open-ended and can be terminated by either party without a termination penalty. Therefore, contracts are defined at the transaction level and do not extend beyond the service already provided.
The Company charges a fee at the transaction level. The transaction price, represented by the trading fee, is calculated based on volume and varies depending on payment type and the value of the transaction. Digital asset purchases or sale transactions executed by a customer on the Company’s platform is based on tiered pricing that is driven primarily by transaction volume processed for a specific historical period. The Company has concluded that this volume-based pricing approach does not constitute a future material right since the discount is within a range typically offered to a class of customers with similar volume. The transaction fee is collected from the customer at the time the transaction is executed. In certain instances, the transaction fee can be collected in digital assets, with revenue measured based on the amount of digital assets received and the fair value of the digital assets at the time of the transaction. The Company also marks up or down the digital asset prices and earns revenue from the spread between the buying and selling price. The Company also earns a fee from transfers of currencies and or digital assets. The transfer fees are nominal and are set to offset the fees associated with banking and or blockchain mining fees.
Biotechnology Revenue
The Company currently generates no revenue from its Biotechnology segment.
Discontinued Operations Revenue
On March 9, 2023, retroactive to March 1, 2023, the Company entered into the Recycling Purchase Agreement with VM7, under which VM7 agreed to acquire all of the outstanding equity interests of the Recycling Subsidiaries. As discussed
ALT5 SIGMA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
previously, the accounts for the Recycling segment have been presented as discontinued operations in the accompanying consolidated financial statements.
Fair Value Measurements
ASC Topic 820, “Fair Value Measurements and Disclosures,” requires disclosure of the fair value of financial instruments held by the Company. ASC Topic 825, “Financial Instruments,” defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures. The three levels of valuation hierarchy are defined as follows: Level 1 - inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets. Level 2 - to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. Level 3 - inputs to the valuation methodology are unobservable and significant to the fair value measurement.
Income Taxes
The Company accounts for income taxes using the asset and liability method. The asset and liability method requires recognition of deferred tax assets and liabilities for expected future tax consequences of temporary differences that currently exist between tax bases and financial reporting bases of the Company's assets and liabilities. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which these temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is provided on deferred taxes if it is determined that it is more likely than not that the asset will not be realized. The Company recognizes penalties and interest accrued related to income tax liabilities in the provision for income taxes in its Consolidated Statements of Income.
Significant management judgment is required to determine the amount of benefit to be recognized in relation to an uncertain tax position. The Company uses a two-step process to evaluate tax positions. The first step requires an entity to determine whether it is more likely than not (greater than 50% chance) that the tax position will be sustained. The second step requires an entity to recognize in the financial statements the benefit of a tax position that meets the more-likely-than-not recognition criterion. The amounts ultimately paid upon resolution of issues raised by taxing authorities may differ materially from the amounts accrued and may materially impact the financial statements of the Company in future periods.
Stock-Based Compensation
The Company from time to time grants stock options to employees, non-employees and Company executives and directors. Such awards are valued based on the grant date fair-value of the instruments. The value of each award is amortized on a straight-line basis over the vesting period.
Earnings Per Share
Earnings per share is calculated in accordance with ASC 260, “Earnings Per Share”. Under ASC 260 basic earnings per share is computed using the weighted average number of common shares outstanding during the period except that it does not include unvested restricted stock subject to cancellation. Diluted earnings per share is computed using the weighted average number of common shares and, if dilutive, potential common shares outstanding during the period. Potential common shares consist of the incremental common shares issuable upon the exercise of warrants, options, restricted shares and convertible preferred stock. The dilutive effect of outstanding restricted shares, options and warrants is reflected in diluted earnings per share by application of the treasury stock method. Convertible preferred stock is reflected on an if-converted basis.
Segment Reporting
ASC Topic 280, “Segment Reporting,” requires use of the “management approach” model for segment reporting. The management approach model is based on the way a Company’s management organizes segments within the Company for making operating decisions and assessing performance. The Company determined it had three reportable segments. The Recycling segment has been presented as discontinued operations (see Note 23).
ALT5 SIGMA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Concentration of Credit Risk
The Company maintains cash balances at banks in Nevada and Minnesota. The account is insured by the Federal Deposit Insurance Corporation up to $250,000. At times, balances may exceed federally insured limits.
Recently Issued Accounting Pronouncements
In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("ASU") 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures ("ASU 2023-07"). ASU 2023-07 requires, among other updates, enhanced disclosures about significant segment expenses that are regularly provided to the CODM, as well as the aggregate amount of other segment items included in the reported measure of segment profit or loss. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, and requires retrospective adoption. Early adoption is permitted. The Company is evaluating the impact of this guidance on its consolidated financial statements and related disclosures.
In December 2023, the FASB issued ASU No. 2023-08, Intangibles-Goodwill and Other-Crypto Assets (Subtopic 350-60): Accounting for and Disclosure of Crypto Assets. The amendments in ASU No. 2023-08 are intended to improve the accounting for certain crypto assets by requiring an entity to measure those crypto assets at fair value each reporting period with changes in fair value recognized in net income. The amendments also improve the information provided to investors about an entity’s crypto asset holdings by requiring disclosure about significant holdings, contractual sale restrictions, and changes during the reporting period. The amendments are effective for all entities for fiscal years beginning after December 15, 2024, including interim periods within those fiscal years. The Company is evaluating the impact of this guidance on its consolidated financial statements and related disclosures.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures ("ASU 2023-09"). ASU 2023-09 requires enhanced annual disclosures regarding the rate reconciliation and income taxes paid information. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, and may be adopted on a prospective or retrospective basis. Early adoption is permitted. The Company is evaluating the impact of this guidance on its consolidated financial statements and related disclosures.
Note 3: Mergers and Acquisitions
Qoden
On November 8, 2024, the Company acquired the Qodex Cryptocurrency Exchange Software platform and other related assets from Qoden Technologies, LLC, a provider of technology solutions for the blockchain industry. The purchase price was $2.2 million, consisting of $2.0 million, or 771,010 shares, of the Company’s Series Q Convertible Preferred Stock and $0.2 million in cash. The Series Q Convertible Stock was valued at $2.594 per share on the date issued, and is subject to a mandatory eight-calendar-quarter leak-out, such that no more than twelve-and-one-half percent of the shares may be converted into shares of the Company’s common stock on a trailing quarterly basis over a period of two years, and are subject to vesting provisions. The $0.2 million in cash is payable in increments of $10,000 per month for 24 months, commencing on the first day of the month following closing. The acquisition was determined to be an asset acquisition for accounting purposes.
ALT5
On May 14, 2024, the Company acquired its ALT5 Subsidiary, which is a fintech company that provides next generation blockchain-powered technologies to enable a migration to a new global financial paradigm. ALT5 Subsidiary, through its respective subsidiaries, offers two main platforms to its customers: “ALT5 Pay” and “ALT5 Prime.” ALT5 Pay is a crypto-currency payment gateway that enables registered and approved global merchants to accept and make crypto-currency payments or to integrate the ALT5 Pay payment platform into their application or operations using the plugin with WooCommerce and or ALT5 Pay’s checkout widgets and APIs. Merchants have the option to convert to fiat currency (US Dollars, Canadian Dollars, Euros, and British Pounds Sterling) automatically or to receive their payment in digital assets.
As consideration under the acquisition, the Company issued 1,799,100 shares of its common stock to the legacy equity holders of the capital stock of ALT5 Subsidiary. Those shares represented approximately 19.9% of the Company's then-issued and outstanding shares of common stock. Each of the shares of the Company's newly-issued common stock was valued at $4.14, which was the Nasdaq Historical NOCP on Thursday, May 9, 2024, the day immediately prior to the date on which the agreement was executed. The Company also issued 34,207 shares of its newly-designated Series B Preferred
ALT5 SIGMA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stock (the “Series B Stock”) to the legacy equity holders of the capital stock of ALT5. In connection with the closing of the acquisition of ALT5 Subsidiary, the Company also issued 3,200 shares of its newly-designated Series M Preferred Stock (the “Series M Stock”) to two entities that acted as finders for the transaction.
The fair value of the purchase price components outlined above was $16.0 million due to fair value adjustments for the shares of Series B Stock and Series M Stock, as detailed below (in $000’s):
Common stock $ 7,448
Series B preferred stock 8,552
Total purchase price $ 16,000
Under the preliminary purchase price allocation, the Company recognized goodwill of approximately $11.7 million, which is calculated as the excess of both the consideration exchanged and liabilities assumed as compared to the fair value of the identifiable assets acquired. The values assigned to the assets acquired and liabilities assumed are based on their estimates of fair value available as of May 10, 2024, as calculated by an independent third-party firm. Because the transaction was considered a stock purchase for tax purposes, none of the goodwill arising from the acquisition will be deductible for tax purposes. During the thirteen weeks ended September 28, 2024, the Company recorded a noncash fair value adjustment related to deferred tax liabilities and other liabilities acquired in the aggregate amount of approximately $7.9 million, which was recorded to goodwill. The table below outlines the purchase price allocation of the purchase for ALT5 Subsidiary to the acquired identifiable assets, liabilities assumed and goodwill (in $000’s):
Total purchase price $ 16,000
Accounts payable 267
Accrued liabilities 7,866
Digital assets payable 16,763
Debt 7,613
Total liabilities assumed 32,509
Total consideration 48,509
Cash 5,853
Accounts receivable 2,917
Digital assets receivable 9,082
Intangible assets
Customer relationships $ 13,925
Trade names 2,675
Developed technology 1,850
Subtotal intangible assets 18,450
Other 493
Total assets acquired 36,795
Total goodwill $ 11,714
Proforma Information
The table below presents selected proforma information for the Company for the years ended December 28, 2024 and December 30, 2023, assuming that the acquisition had occurred on January 1, 2023 (the beginning of the Company’s 2023 fiscal year), pursuant to ASC 805-10-50 (in $000’s). This proforma information does not purport to represent what the
ALT5 SIGMA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
actual results of operations of the Company would have been had the acquisition occurred on that date, nor does it purport to predict the results of operations for future periods.
Fiscal Year Ended
December 28, 2024 As Reported Adjustments Proforma
ALT5 Sigma Corporation (1) ALT5 Subsidiary (2) Adjustments (3) Total
Net revenue $ 12,532 $ 2,918 $ 15,450
Net income $ (6,245) $ 71 $ (1,343) $ (7,517)
Earnings per basic common share $ (0.56) $ (0.11)
Earnings per basic diluted share $ (0.56) $ (0.11)
Fiscal Year Ended
December 30, 2023 As Reported Adjustments Proforma
ALT5 Sigma Corporation (4) ALT5 Subsidiary (5) Adjustments (3) Total
Net revenue $ - $ 7,145 $ 7,145
Net income $ (7,812) $ 3,359 $ (2,148) $ (6,601)
Earnings per basic common share $ (1.95) $ (1.65)
Earnings per basic diluted share $ (1.95) $ (1.65)
(1)ALT5 Sigma Corporation for the year ended December 28, 2024. Includes ALT5 Subsidiary from May 15, 2024 through December 28, 2024.
(2)ALT5 Subsidiary from December 31, 2023 through the acquisition date of May 14, 2024.
(3)Reflects adjustments for amortization expense of definite-lived intangible assets has been adjusted based on the preliminary fair value at the acquisition date..
(4)ALT5 Sigma Corporation for the year ended December 30, 2023.
(5) ALT5 Subsidiary for the year ended December 30, 2023.
Soin Pharmaceuticals
Effective January 24, 2024, the Company, Amol Soin (“Dr. Soin”), and Soin Therapeutics LLC, a wholly-owned subsidiary of the Company that we had acquired from Dr. Soin, entered into an amendment (the “Soin Amendment”) to the parties’ Agreement and Plan of Merger that was dated as of December 28, 2022 (the “Soin Agreement”). With reference to the Soin Agreement, the parties to the Soin Amendment agreed that the $3.0 million convertible tranche (the first of the three original conversion tranches under the Soin Agreement) would be payable to Dr. Soin in cash rather than through his conversion of shares of the Series S Convertible Preferred Stock (the “Soin Preferred”) that constituted the consideration under the Soin Agreement. We tendered the first $0.1 million amended tranche cash payment to Dr. Soin in March 2024; the second amended tranche cash payment to Dr. Soin, also in the amount of $0.1 million, was due on July 1, 2024; and the third amended tranche cash payment to Dr. Soin, in the amount of $2.8 million, was due on December 31, 2024. During the pendency of the amended cash tranche period, Dr. Soin agreed that he would not convert any of his shares of Soin Preferred. After we have tendered the second and third amended tranche cash payments to Dr. Soin, his conversion rights for the second and third original conversion tranches will remain convertible under the original provisions of the Soin Agreement and the related Certificate of Designation for the Soin Preferred. If we do not tender the second and third amended tranche cash payments to Dr. Soin, we agreed that we will transfer to him the membership interests of Soin Therapeutics LLC, and he will transfer to us the shares of Soin Preferred for cancellation. During the year ended December 28, 2024, we tendered an aggregate of $150,000 to Dr. Soin and during February 2025, we tendered an additional $350,000.
In connection with the Soin Amendment, the Company reclassified the $3.0 million convertible tranche, originally valued at approximately $2.7 million on our balance sheet, from mezzanine equity to current liabilities, and reclassified the $10.0 million convertible tranche, originally valued at approximately $8.0 million on our balance sheet, to permanent equity. As of December 28, 2024, the outstanding balance in mezzanine equity relates to the $17.0 million convertible tranche originally valued at approximately $3.9 million.
ALT5 SIGMA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4: Sale of Recycling Subsidiaries
On March 9, 2023, the Company entered into a Stock Purchase Agreement (the “Recycling Purchase Agreement”) with VM7 Corporation, a Delaware corporation (“VM7”), under which it agreed to acquire all of the outstanding equity interests of the Recycling Subsidiaries, consisting of: (a) ARCA Recycling, (b) ARCA Canada, and (c) Connexx. The principal of VM7 is Virland A. Johnson, our Chief Financial Officer. The sale of all of the outstanding equity interests of the Recycling Subsidiaries to VM7 under the Recycling Purchase Agreement was consummated simultaneously with the execution of the Recycling Purchase Agreement. The Recycling Purchase Agreement is retroactive to March 1, 2023 (see Note 4).
The valuation, factoring in the discount rate that the Company used, yielded a present value of approximately $6.0 million, which, in addition to the $3,000 paid at close, comprised the approximately 6.0 million of net consideration. The amount of the revised discount amount, or approximately $18.0 million, was recorded as an offset to the principal amount of the Note, and was to have been accreted ratably to interest income over the term of the Note. During the year ended December 30, 2023, approximately $720,000 of the discount was recorded as interest income.
During the fourth quarter of fiscal 2023, VM7 determined that, after expending significant amounts of time and resources, it was unable to obtain sufficient equity or debt financing to continue the operations of the Recycling Subsidiaries. Accordingly, the Company was advised that the operations of the Recycling Subsidiaries were wound down and, ultimately, ceased. For a variety of related reasons, the Company determined fully to impair the $5.3 million carrying value of the Disposition Transaction on its balance sheet and determined not to exercise any of its remedies under the Recycling Purchase Agreement so that it could maintain its focus on its clinical-stage biopharmaceutical activities.
The preliminary calculation of the gain on sale was approximately $15.8 million. The following table details the final calculation of the gain on sale of the Recycling Subsidiaries, as shown on the income statement (in $000’s):
Total minimum consideration $ 6,023
Payment from buyer 3
Net consideration $ 6,026
Accounts payable 5,323
Accrued liabilities 1,857
Accrued liabilities - California state sales tax 6,320
Lease liabilities 5,285
Debt 2,139
Accumulated other comprehensive loss (604)
Total disposal of liabilities 20,320
Total consideration 26,346
Cash 145
Accounts receivable 4,884
Inventory 67
Property, plant and equipment 2,767
Intangible assets 732
Right-of-use assets 5,075
Other assets 574
Total disposal of assets 14,244
Total gain on sale $ 12,102
Note 5: Discontinued Operations
As of December 30, 2023, the Company discontinued operations of its Recycling segment as follows:
On March 9, 2023, the Company executed a Recycling Purchase Agreement with VM7, under which, as of March 1, 2023, it agreed to acquire all of the outstanding equity interests of the Recycling Subsidiaries, consisting of (a) ARCA Recycling,
ALT5 SIGMA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(b) ARCA Canada, and (c) Connexx. The principal of VM7 is Virland A. Johnson, our Chief Financial Officer. The sale of all of the outstanding equity interests of the Recycling Subsidiaries to VM7 under the Recycling Purchase Agreement was consummated simultaneously with the execution of the Recycling Purchase Agreement (See Note 4).
In accordance with the provisions of ASC 205-20, the Company has not included in the results of continuing operations the results of operations of the discontinued operations in the consolidated statements of operations and comprehensive income (loss). The results of operations for these entities for the year ended December 28, 2024 and December 30, 2023, respectively, have been reflected as discontinued operations in the consolidated statements of operations and comprehensive income (loss) and consist of the following (in $000’s):
December 28, 2024 December 30, 2023
Revenues $ - $ 3,795
Cost of revenues - 3,992
Gross profit - (197)
Operating expenses from discontinued operations:
Selling, general and administrative expenses - 1,467
Gain on sale of ARCA - (12,102)
Total operating expenses from discontinued operations - (10,635)
Operating income from discontinued operations - 10,438
Other expense from discontinued operations
Interest expense, net - (181)
Other expense, net - (3)
Total other expense, net - (184)
Income before provision for income taxes from discontinued operations - 10,254
Income tax provision - 971
Net income from discontinued operations $ - $ 9,283
In accordance with the provisions of ASC 205-20, the Company has separately reported the cash flow activity of the discontinued operations in the consolidated statements of cash flows. The cash flow activity from discontinued operations for the year ended December 28, 2024 and December 30, 2023 have been reflected as discontinued operations in the consolidated statements of cash flows and consist of the following (in $000’s):
ALT5 SIGMA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 28, 2024 December 30, 2023
DISCONTINUED OPERATING ACTIVITIES:
Net income from discontinued operations - 9,283
Depreciation and amortization - 96
Amortization of debt issuance costs - 11
Amortization of right-of-use assets - 52
Gain on sale of ARCA, net of cash - (12,248)
Changes in assets and liabilities:
Accounts receivable - 2,932
Inventories - 299
Prepaid expenses and other current assets - 56
Accounts payable and accrued expenses - 1,837
Other assets - 1
Net cash provided by operating activities from discontinued operations $ - $ 2,319
DISCONTINUED INVESTING ACTIVITIES:
Purchases of property and equipment - (123)
Purchase of intangible assets - (32)
Net cash used in investing activities from discontinued operations $ - $ (155)
DISCONTINUED FINANCING ACTIVITIES:
Proceeds from note payable - 5,162
Payments on related party note - (38)
Payments on notes payable - (7,336)
Net cash used in financing activities from discontinued operations $ - $ (2,212)
Effect of changes in exchange rate on cash and cash equivalents - (5)
DECREASE IN CASH AND CASH EQUIVALENTS - (53)
CASH AND CASH EQUIVALENTS, beginning of period - 53
CASH AND CASH EQUIVALENTS, end of period $ - $ -
Note 6: Prepaids and other current assets
Prepaids and other current assets as of December 28, 2024 and December 30, 2023 consist of the following (in $000’s):
December 28, 2024 December 30, 2023
Prepaid insurance $ 1 $ 3
Prepaid other 1,517 72
Total prepaids and other current assets $ 1,518 $ 75
ALT5 SIGMA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 7: Property and Equipment
Property and equipment as of December 28, 2024 and December 30, 2023 consist of the following (in $000’s):
December 28, 2024 December 30, 2023
Projects under construction $ 1,170 $ -
Total property and equipment, net $ 1,170 $ -
The Company recorded no depreciation expense from continuing operations for the years ended December 28, 2024 and December 30, 2023.
Note 8: Leases
In connection with its acquisition of ALT5 Subsidiary (see Note 3), the Company leases commercial office space. These assets and properties are leased under noncancelable agreements that expire at various future dates. The agreements, which have been classified as operating leases, provide for minimum rent and require the Company to pay all insurance, taxes, and other maintenance costs. As a result, the Company recognizes assets and liabilities for leases with lease terms greater than 12 months. The amounts recognized reflect the present value of remaining lease payments for all leases. The discount rate used is an estimate of the Company’s blended incremental borrowing rate based on information available associated with each subsidiary’s debt outstanding at lease commencement. In considering the lease asset value, the Company considers fixed and variable payment terms, prepayments and options to extend, terminate or purchase. Renewal, termination, or purchase options affect the lease term used for determining lease asset value only if the option is reasonably certain to be exercised.
The following table details the Company’s right of use assets and lease liabilities as of December 28, 2024 and December 30, 2023 (in $000’s):
December 28, 2024 December 30, 2023
Right of use asset - operating leases $ 121 $ -
Lease liabilities:
Current - operating 10 -
Long term - operating 113 -
As of December 28, 2024, the weighted average remaining lease term for operating leases is 4.9 years. The Company’s weighted average discount rate for operating leases is 12.8%. No cash payments for operating leases were made during the years ended December 28, 2024 and December 30, 2023. Additionally, the Company recognized approximately $123,000 in right of use assets and liabilities upon commencement of operating leases during the year ended December 28, 2024.
Total present value of future lease payments of operating leases as of September 28, 2024 (in $000’s):
Twelve months ended:
2025 $ 27
2026 34
2027 36
2028 37
2029 36
Thereafter -
Total 170
Less implied interest (47)
Present value of payments $ 123
ALT5 SIGMA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 9: Notes receivable
SPYR Note
On May 24, 2022, the Company entered into an Asset Purchase Agreement with SPYR Technologies Inc. (“SPYR”), pursuant to which the Company sold to SPYR substantially all of the assets and none of the specified liabilities of GeoTraq. In connection with the Purchase Agreement, SPYR delivered to the Company a five-year Promissory Note in the initial principal amount of $12.6 million. The Promissory Note bears simple interest at the rate of 8.0% per annum, provides quarterly interest payments due on the first day of each calendar quarter, and may be prepaid at any time without penalty. Interest payments may be remitted in either restricted shares of common stock or restricted shares of Series G Convertible Preferred Stock of SPYR, or in cash. The Promissory Note matures on May 24, 2027. The Company had received restricted shares of Series G Convertible Preferred Stock of SPYR equivalent to approximately 26,253,900,000 shares of its common stock during the year ended December 28, 2024, and 922,442,000 shares of SPYR's common stock during the year ended December 30, 2023. As of December 30, 2023, the Company had no accrued receivables related to the Promissory Note.
At December 30, 2023, the Company performed a qualitative analysis of the SPYR note receivable and concluded that, due to a number of triggering factors, it was probable that SPYR would be unable to fulfill its obligation to repay the principal amount under the promissory note on or before the maturity date. Consequently, the Company recorded an impairment charge of approximately $9.8 million for the fiscal year ended December 30, 2023.
During the fiscal years ended December 28, 2024 and December 30, 2023, approximately $0 and $806,000, respectively, of the discount was recorded as interest income. As of December 28, 2024 and December 30, 2023, no principal balance on the Note was outstanding.
VM7 Note
On March 9, 2023, the Company entered into a Stock Purchase Agreement (the “Recycling Purchase Agreement”) with VM7 Corporation, a Delaware corporation (“VM7”), under which it agreed to acquire all of the outstanding equity interests of the Recycling Subsidiaries, consisting of: (a) ARCA Recycling, (b) ARCA Canada, and (c) Connexx. The principal of VM7 is Virland A. Johnson, our Chief Financial Officer. The sale of all of the outstanding equity interests of the Recycling Subsidiaries to VM7 under the Recycling Purchase Agreement was consummated simultaneously with the execution of the Recycling Purchase Agreement. The Recycling Purchase Agreement is retroactive to March 1, 2023 (see Note 4).
The valuation, factoring in the discount rate that the Company used, yielded a present value of approximately $6.0 million, which, in addition to the $3,000 paid at close, comprised the approximately 6.0 million of net consideration. The amount of the revised discount amount, or approximately $18.0 million, was recorded as an offset to the principal amount of the Note, and was to have been accreted ratably to interest income over the term of the Note. During the year ended December 30, 2023, approximately $720,000 of the discount was recorded as interest income.
During the fourth quarter of fiscal 2023, VM7 determined that, after expending significant amounts of time and resources, it was unable to obtain sufficient equity or debt financing to continue the operations of the Recycling Subsidiaries. Accordingly, the Company was advised that the operations of the Recycling Subsidiaries were wound down and, ultimately, ceased. For a variety of related reasons, the Company determined fully to impair the $5.3 million carrying value of the Disposition Transaction on its balance sheet and determined not to exercise any of its remedies under the Recycling Purchase Agreement so that it could maintain its focus on its clinical-stage biopharmaceutical activities.
ALT5 SIGMA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10: Intangible assets
Intangible assets as of consist of the following (in $000’s):
December 28, 2024 December 30, 2023
Soin intangibles $ 19,293 $ 19,293
Qoden intangible 1,536 -
Patents and domains 4 4
Trade names 2,675 -
Customer relationships 13,925 -
Developed technology 1,850 -
Total intangible assets 39,283 19,297
Less accumulated amortization (4,853) (1,451)
Total intangible assets, net $ 34,430 $ 17,846
Intangible amortization expense for continuing operations was approximately $3.4 million and $1.5 million, respectively, for the fiscal years ended December 28, 2024 and December 30, 2023.
Qoden Intangible Assets
On November 8, 2024, the Company acquired the Qodex Cryptocurrency Exchange Software platform and other related assets from Qoden Technologies, LLC, a provider of technology solutions for the blockchain industry. The Company will amortize the intangible assets over a two-year period (see Note 3).
ALT5 Subsidiary Intangible Assets
On May 14, 2024, the Company acquired its ALT5 Subsidiary, which is a fintech company that provides next generation blockchain-powered technologies to enable a migration to a new global financial paradigm. As part of the acquisition, the Company acquired trade names, customer relationships, and developed technology, which will be amortized over a period of seven years, 10 years, and five years, respectively (see Note 3).
Soin Intangible Assets
Effective as of December 28, 2022, the Company acquired Soin Therapeutics LLC, a Delaware limited liability company (“STLLC”), and its product, a patent-pending, novel formulation of low-dose naltrexone. The assets acquired by the Company consist of 1) three pending patents related to the methods of using low-dose Naltrexone to treat chronic pain, 2) final formula for Naltrexone, and 3) orphan drug designation as approved by the FDA. The Company reviewed the assets acquired and determined that no in-process research and development costs were acquired as part of the transaction, and, thus, all assets acquired represent intellectual property and should be capitalized. The Company will amortize the intangible assets ratably over a 10-year period.
ALT5 SIGMA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 11: Marketable Securities
Marketable securities consist of the following (in $000’s, except shares):
Series G Convertible Preferred Shares Common Shares Equivalent Amount
Beginning balance, December 31, 2022 - 30,000,000 $ 315
Securities received 9,224 922,442,000 897
Mark-to-market - (926)
Beginning balance, December 30, 2023 9,224 952,442,000 286
Securities received 33,876 26,253,900,000 $ 518
Mark-to-market - $ (370)
Write-off marketable securities (43,100) (27,206,342,000) $ (434)
Ending balance, December 28, 2024 - - $ -
Marketable securities reflect shares of SPYR stock received by the Company in connection with the sale of GeoTraq. Quarterly interest payments may be remitted in either restricted shares of common stock or restricted shares of Series G Convertible Preferred Stock of SPYR, or in cash. Shares of Series G Convertible Preferred Stock are convertible into the SPYR’s common shares at a ratio of 1:100,000. Shares held are marked to fair market value as of each balance sheet date, with the resulting change recorded as an unrealized gain or loss. For the year ended December 28, 2024, the Company received 33,876 shares of Series G Convertible Preferred Stock, which are convertible into approximately 26,253,900,000 shares of SPYR’s common stock. For the year ended December 30, 2023, the Company received 9,224 shares of Series G Convertible Preferred Stock, which are convertible into approximately 922,442,000 shares of SPYR’s common stock. Unrealized loss was approximately $1.1 million and $926,000 for the years ended December 28, 2024 and December 30, 2023, respectively.
During the year ended December 28, 2024, the Company was notified that SPYR Technologies, Inc. (“SPYR”) had ceased operations, and that no future quarterly interest payments on the promissory note, which may be remitted in either restricted shares of common stock or restricted shares of Series G Convertible Preferred Stock of SPYR, or in cash, would be made. Consequently, the Company recorded a full write-off of approximately $434,000 of its Series G Convertible Preferred shares of SPYR.
Note 12: Deposits and other assets
Deposits and other assets consist of the following (in $000’s):
December 28, 2024 December 30, 2023
Deposits and other assets $ - $ 9
Total deposits and other assets $ - $ 9
ALT5 SIGMA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 13: Accrued liabilities
Accrued liabilities of continuing consist of the following (in $000’s):
December 28, 2024 December 30, 2023
Compensation and benefits $ 204 $ 37
Accrued guarantees 309 3,049
Accrued taxes 362 102
Accrued interest 789 -
Accrued Qoden payments 109 -
Accrued litigation/legal 50 397
Other 730 48
Total accrued liabilities $ 2,553 $ 3,633
Note 14: Debentures
Debentures outstanding as of December 28, 2024 and December 30, 2023 consisted for the following (in $000’s):
December 28, 2024 December 30, 2023
Interest rate of 15%, maturity date of June 30, 2025
563 -
Total debentures $ 563 $ -
ALT5 Subsidiary issued 39 debentures over a period from October 2018 through September 2019. The debentures bear interest at 12% per annum and mature as of June 30, 2024 or June 30, 2025. During the year ended December 28, 2024, ALT5 Subsidiary repaid 33 of the debentures in the amount of approximately $1.1 million.
ALT5 SIGMA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 15: Long-Term Debt
Long-term debt as of December 28, 2024 and December 30, 2023 consisted of the following (in $000’s):
December 28, 2024 December 30, 2023
Legacy subsidiary fixed deposits $ 4,247 $ -
Legacy subsidiary loan 3,782 -
Unaffiliated third-party 3,508 -
Other 33 -
Total notes payable, related parties 11,570 -
Less current portion - -
Total long-term notes payable, related parties $ 11,570 $ -
Legacy Subsidiary Fixed Deposits
During the year ended December 28, 2024, ALT5 Subsidiary entered into several Corporate Fixed Deposit Agreements with otherwise unaffiliated third-parties, pursuant to which the Company became obligated for an aggregate of $4.7 million, as set forth in the respective agreements. Each obligation bears interest at a rate of 13% or 15% per annum, and has a maturity date range of March 18, 2026 to March 13, 2027. During the year ended December 28, 2024, several of these unaffiliated third-parties agreed to convert their respective investments into Future Equity Agreements for shares of the Company’s subsidiary, Alyea Therapeutic and, consequently, approximately $475,000 of these deposits were reclassified as non-controlling interest. As of December 28, 2024, the outstanding aggregate obligations totaled approximately $4.2 million.
Legacy Subsidiary Loan
On August 10, 2023, ALT5 Subsidiary entered into an extension agreement for a Bitcoin promissory note with an otherwise unaffiliated third-party. The Bitcoin promissory note is denominated in Bitcoin and, thus, is adjusted to its fair value each period. Pursuant to the terms of an extension agreement, the maturity date is August 29, 2025. The promissory note bears interest at 15% per annum. As of December 28, 2024, the outstanding balance of the note was approximately $3.8 million.
Unaffiliated Third-Party Loans
ICG Note
On February 7, 2024, the Company amended its outstanding related party promissory obligations (the “ICG Note”) in favor of Isaac Capital Group LLC (“ICG”) to add a convertibility provision. In accordance with Nasdaq Rules, the per-share conversion price was set at $0.61, subject to standard adjustments for (i) stock dividends and splits, (ii) subsequent rights offerings, and (iii) pro rata distributions. The Company’s board of directors provided its approvals of the amendments on February 7, 2024. On March 6, 2024, ICG entered into a Note Purchase Agreement with an otherwise unaffiliated third party, under which the third party acquired the ICG Note. The terms and conditions of the ICG Note were not modified in connection with its acquisition by the third party. The principal amount of the ICG Note on the date of acquisition was approximately $1.2 million. During the year ended December 28, 2024, the third party converted $548,900 of the Company’s obligations under the ICG Note into 900,000 shares of the Company’s common stock. As of December 28, 2024, the amount outstanding on the ICG Note was approximately $0.7 million.
Live Note
On February 7, 2024, the Company amended its outstanding related party promissory obligations (the “Live Note”) in favor of Live Ventures Incorporated (“Live”) to add a convertibility provision. In accordance with Nasdaq Rules, the per-share conversion price for each obligation, as amended, was set at $0.61, subject to standard adjustments for (i) stock dividends and splits, (ii) subsequent rights offerings, and (iii) pro rata distributions. The Company’s board of directors provided its final approvals of the amendments on February 7, 2024. On March 6, 2024, Live entered into a Note Purchase Agreement with another otherwise unaffiliated third party, under which the third party acquired the Live Note. The terms and conditions of the acquired Live Note were not modified in connection with its acquisition by the third party. The principal amount of the Live Note on the date of acquisition was approximately $1.0 million. During the year ended
ALT5 SIGMA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 28, 2024, the third party converted $243,900 of the Company’s obligations under the Live Note into 400,000 shares of the Company’s common stock. As of December 28, 2024, the amount outstanding on the Live Note was approximately $0.8 million.
Skybridge Obligation
On April 10, 2024, Skybridge Americas, Inc. (“SA”) sold its judgment to an otherwise unaffiliated third party for the face value of the judgment and the interest accrued thereon through that date (an aggregate of $433,920), plus accrued legal fees (in the amount of $18,124) to which SA was entitled in accordance with the terms of the underlying agreement with the Company and with the judgment. The purchaser agreed to forbear from enforcing the judgment, subject to the Company’s repayment or his conversion thereof. In connection with the third-party’s forbearance, the Company issued its promissory note to such person in the initial principal amount of $147,956, which bears interest at the rate of 10% per annum, and, as with the underlying judgment, is convertible into shares of the Company’s common stock at a fixed per-share conversion price of $2.60 (see Note 21).
On December 23, 2024, pursuant to the terms of the agreement, the unaffiliated third party converted the obligation, plus accrued interest under the agreements, in the amount of approximately $691,000, into 265,842 shares of the Company’s common stock (see Note 18). As of December 28, 2024, there was no balance outstanding.
Big/Small Debentures
On August 20, 2024, the Company entered into three Purchase Agreements with three otherwise unaffiliated third-party investors (the “Investors”), pursuant to which (1) one Investor agreed to purchase a unit (the “Unit”), consisting of (i) a non-convertible debenture in the principal amount of up to approximately $1.8 million (the “Big Debenture”), and (ii) a warrant (the “Big Warrant”) for the purchase of up to 400,000 shares of the Company’s Common Stock and (2) the two other Investors each agreed to purchase a Unit, consisting of (i) a non-convertible debenture in the principal amount of up to $404,454 (the “Small Debenture”, and, together with the Big Debenture, the “Debentures”) and (ii) a warrant (the “Small Warrant”, and, together with the Big Warrant, the “Warrants”) for the purchase of up 90,909 shares of Common Stock.
The Debentures are unsecured and subordinated to any existing or future debt. The Debentures bear interest at a rate of (i) 1% per month from and after August 20, 2024 (“Original Issue Date”) through and including October 31, 2024, (ii) 3% per month from and after November 1, 2024 through and including January 29, 2025, and (iii) 4% per month from and after January 30, 2025 through and including the date of repayment.
The Big Debenture was issued with an original issue discount (an “OID”) initially of $171,000, which OID can be expanded with up to two potential additions, the first in the amount of $171,000 and, thereafter, in the amount of $342,000, which OIDs will increase the principal amount owing on the Big Debenture. With the original OID, the initial principal amount owing under the Big Debenture is approximately $1.3 million; if, expanded, the principal amount would increase to approximately $1.4 million and, thereafter, potentially to approximately $1.8 million. The first potential increase in the Big Debenture OID would occur if the initial principal amount and interest accrued thereon is not paid in full on or before October 31, 2024. The second potential increase in the OID would occur if the initial principal amount (including the first potential increase in the OID) and interest accrued thereon is not paid in full on or before January 29, 2025.
The Small Debentures were issued with an OID initially of $38,863, which OID can be expanded with up to two potential additions, the first in the amount of $38,863 and, thereafter, in the amount of $77,728, which OIDs will increase the principal amount owing on the Small Debentures. With the original OID, the initial principal amount owing under a Small Debenture is $288,864; if, expanded, the principal amount would increase to $327,726 and, thereafter, potentially to $404,454. The first potential increase in the Small Debenture OID would occur if the initial principal amount and interest accrued thereon is not paid in full on or before October 31, 2024. The second potential increase in the OID would occur if the initial principal amount (including the first potential increase in the OID) and interest accrued thereon is not paid in full on or before January 29, 2025.
As of November 1, 2024, the first of the two additional OIDs was effective. The final maturity date for each of the Debentures is April 28, 2025.
The Big Warrant is exercisable, at an exercise price of $1.71 per share, as follows: (i) 100,000 shares of Common Stock as of Original Issue Date, (ii) contingently for an additional 100,000 shares of Common Stock as of October 31, 2024, if, as of such date, the Company has not repaid in full its obligations under the Big Debenture, and (iii) contingently for an
ALT5 SIGMA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
additional 200,000 shares of Common Stock as of January 29, 2025, if, as of such date, the Company has not repaid in full its obligations under the Big Debenture.
The Small Warrant is exercisable, at an exercise price of $1.71 per share, as follows: (i) 22,727 shares of Common Stock as of Original Issue Date, (ii) contingently for an additional 22,727 shares of Common Stock as of October 31, 2024, if, as of such date, the Company has not repaid in full its obligations under the Small Debenture, and (iii) 45,455 shares of Common Stock as of January 29, 2025, if, as of such date, the Company has not repaid in full its obligations under the Small Debenture.
As of November 1, 2024, the contingent second tranche of the Warrants vested.
Each Investor is required to exercise the initial tranche of each Warrant within 15 days of the Original Issue Date. Upon the vesting of each contingent tranche of a Warrant vest, each Investor shall exercise such vested, contingent tranche within 15 days of the vesting of such contingent tranche. If the Company consummates any equity or debt financing before satisfying in full its obligations under the Debentures, then 50% of every net dollar received by the Company from any such financing transaction shall be paid by the Company to the holders of the Debentures, on a pro rata basis, as a mandatory pre-payment thereof. In the event the Company has repaid all sums owing under a Debenture to the Investor, except for an amount equal to any non-conditional OID, the Company has the right, not the obligation, to exercise the vested portion of the Warrant held by the Debenture holder through a set-off of any or all such unpaid OID, on a dollar-for-dollar basis. The Warrants also feature a “cashless” exercise provision. In lieu of making the cash payment otherwise contemplated to be made to the Company upon exercise of a Warrant in payment of the aggregate exercise price, the holder may elect instead to receive upon such exercise (either in whole or in part) the net number of shares of Common Stock determined according to a formula set forth in the Warrant.
During the fourth quarter of the year ended December 28, 2024, the non-affiliated Investor exercised the Big Warrant for a total of 200,000 shares of the Company’s common stock, and the other two non-affiliated Investors exercised the Small Warrant for a total of 90,908 shares (see Note 18). Additionally, during the fourth quarter of the year ended December 28, 2024, these unaffiliated third-parties agreed to convert a portion their respective investment into Future Equity Agreements of the Company’s subsidiary, Alyea Therapeutics and, consequently, approximately $1.3 million was reclassified as non-controlling interest. As of December 28, 2024, the outstanding balance due on the debentures was approximately $500,000, consisting of principal and accrued interest.
Corporate Fixed Deposit Agreement
On September 19, 2024, ALT5 Subsidiary and an investor entered into a 12-month Corporate Fixed Deposit Agreement, pursuant to which ALT5 Subsidiary borrowed $1.5 million at an interest rate of 12% per annum, payable monthly, calculated on the then-unpaid principal amount. Upon maturity, ALT5 Subsidiary is obligated to repay the principal amount in full and any accrued and unpaid interest. The principal may be repaid in full, but not in part, with a pre-payment penalty equivalent to three month’s of interest. As of December 28, 2024, the outstanding balance was $1.5 million.
ALT5 SIGMA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 16: Related Party Debt
Long-term debt payable to related parties (see Note 20) as of December 28, 2024 and December 30, 2023 consisted of the following (in $000’s):
December 28, 2024 December 30, 2023
Isaac Capital Group $ - $ 707
Isaac Capital Group, 10% interest rate, matures December 31, 2024
327 -
Live Ventures Incorporated, 10% interest rate, matures December 31, 2024
327 -
Isaac Capital Group short-term demand advance 48 -
Novalk Apps SAA, LLP short-term demand advance 110 -
Total notes payable, related parties 812 707
Less current portion (812) -
Total long-term notes payable, related parties $ - $ 707
Total future maturities of long-term debt to related parties is as follows (in $000’s):
Twelve months ending September 30,
2025 $ 812
Total future maturities of long-term debt, related parties $ 812
Isaac Capital Group LLC
On February 7, 2024, the Company amended its outstanding related party promissory obligations (the “ICG Note”) in favor of ICG to add a convertibility provision. In accordance with Nasdaq Rules, the per-share conversion price was set at $0.61, subject to standard adjustments for (i) stock dividends and splits, (ii) subsequent rights offerings, and (iii) pro rata distributions. The Company’s board of directors provided its approvals of the amendments on February 7, 2024. On March 6, 2024, ICG entered into a Note Purchase Agreement with an otherwise unaffiliated third party, under which the third party acquired the ICG Note. The terms and conditions of the ICG Note were not modified in connection with its acquisition by the third party. The principal amount of the ICG Note on the date of acquisition was approximately $1.2 million. As of December 28, 2024, the third party converted $183,000 of the Company’s obligation under the ICG Note into 300,000 shares of the Company’s common stock. As of December 28, 2024, the amount outstanding on the ICG Note was approximately $0.3 million (see Note 20).
On April 18, 2024, ICG made a short-term demand advance to the Company in the amount of $100,000. The advance bears interest at a rate of 10% per annum until repaid. As of December 28, 2024, the principal amount outstanding was $48,000 (see Note 20).
Live Ventures Incorporated
On February 7, 2024, the Company amended its outstanding related party promissory obligations (the “Live Note”) in favor of Live Ventures to add a convertibility provision. In accordance with Nasdaq Rules, the per-share conversion price for each obligation, as amended, was set at $0.61, subject to standard adjustments for (i) stock dividends and splits, (ii) subsequent rights offerings, and (iii) pro rata distributions. The Company’s board of directors provided its final approvals of the amendments on February 7, 2024. On March 6, 2024, Live Ventures entered into a Note Purchase Agreement with another otherwise unaffiliated third party, under which under which the third party acquired the Live Note. The terms and conditions of the acquired Live Note were not modified in connection with its acquisition by the third party. The principal amount of the Live Note on the date of acquisition was approximately $1.0 million. As of December 28, 2024, the third party converted $183,000 of the Company’s obligation under the Live Note into 300,000 shares of the Company’s common stock. As of December 28, 2024, the amount outstanding on the Live Note was approximately $0.3 million (see Note 20).
Jon Isaac
On March 4, 2024, the Company entered into a two-year Consulting Agreement with Jon Isaac, pursuant to which he will provide to the Company (the “Services”): (i) strategic financial advice, including growth strategies, capital allocation, and financial restructuring; (ii) sales and business development advice, including for the acquisition of new clients and new products through networking, referrals, and marketing efforts for our prospective products; (iii) in-depth research and
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market intelligence on specific industries, sectors, and market trends; (iv) financial models and financial analysis to support strategic decision-making; (v) assistance, through site visits, in the preparation of new client offers and bids for proposed projects; (vi) weekly update calls with management to align on progress of objectives and goals; (vii) enhanced non-confidential materials; (viii) business risk management support; and (ix) other services to which the Company and he may agree that will be memorialized in writing if, when, and as needed during the two-year term. In connection with the Consulting Agreement, the Company entered into a a two-year, straight 10% convertible promissory note in the initial principal amount of $500,000, and a per-share conversion price equivalent to the per-share value of the restricted common stock that he was granted ($1.16). The maturity date of the promissory note is March 4, 2026.
On December 23, 2024, pursuant to the terms of his Consulting Agreement, Mr. Isaac converted the principal and accrued interest on the convertible promissory note, in the amount of approximately $540,000, into 465,753 shares of the Company’s common stock. As of December 28, 2024, there was no principal balance outstanding on the promissory note (see Note 20).
Novalk Apps SAA, LLP
On May 28, 2024 and June 3, 2024, Novalk Apps SAA, LLP (“Novalk”) made short-term demand advances in the amount of $120,000 and $100,000, respectively, to the Company. The advances bears interest at a rate of 10% per annum until repaid. As of December 28, 2024, the principal amount outstanding was $110,000 (see Note 20).
Tony Isaac
During June 3, 2024, Tony Isaac made a number of short-term demand advances in the aggregate amount of $62,000 to the Company. The advances bears interest at a rate of 10% per annum until repaid. As of December 28, 2024, the principal amount outstanding was fully repaid (see Note 20).
ALT5 SIGMA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 17: Preferred Stock
Series A-1 Convertible Preferred Stock
History
On August 18, 2017, the Company acquired GeoTraq by way of merger. In connection with this transaction, the Company tendered to the owners of GeoTraq $200,000, issued to them an aggregate of 288,588 shares (number of shares specific - not rounded) of the Company’s Series A Convertible Preferred Stock valued at $12.3 million, including the beneficial conversion feature of $2.6 million, and entered into one-year unsecured promissory notes in the aggregate principal amount of $800,000.
Conversion
The “Conversion Ratio” per share of the Series A-1 Convertible Preferred Stock in connection with any conversion shall be at a ratio of 20:1, one share of Series A-1 Convertible Preferred Stock, if and when converted into shares of Common Stock, shall convert into twenty shares Common Stock. Each holder shall have the right, exercisable at any time and from time to time (unless otherwise prohibited by law, rule, or regulation, or as restricted below), to convert any or all of such holder’s shares of Series A-1 Convertible Preferred Stock into shares of Common Stock at the Conversion Ratio.
During the years ended December 28, 2024 and December 30, 2023, 0 and 27,353 shares of the Company’s Series A-1 Convertible Preferred Stock were converted into 0 and 547,069 shares, respectively, of the Company’s common stock. Additionally, during the year ended December 28, 2024, 0 shares of the Company’s Series A-1 Convertible Preferred Stock were forfeited. As of December 28, 2024 and December 30, 2023, there were 23,480 and 193,730 shares, respectively, of Series A-1 Convertible Preferred Stock outstanding.
Dividends
The Company cannot declare, pay or set aside any dividends on shares of any other class or series of our capital stock unless (in addition to the obtaining of any consents required by our Articles of Incorporation) the holders of the Series A Convertible Preferred Stock then outstanding shall first receive, or simultaneously receive, a dividend in the aggregate amount of one dollar, regardless of the number of then-issued and outstanding shares of Series A Convertible Preferred Stock. Any remaining dividends allocated by the Board of Directors shall be distributed in an equal amount per share to the holders of outstanding common stock and Series A-1 Convertible Preferred Stock (on an as-if-converted to common stock basis pursuant to the Conversion Ratio as defined below).
Voting Rights
Each holder of a share of Series A Convertible Preferred Stock has a number of votes as is determined by multiplying (i) the number of shares of Series A Preferred Stock held by such holder, and (ii) 17. The holders of Series A-1 Convertible Preferred Stock vote together with all other classes and series of common and preferred stock of the Company as a single class on all actions to be taken by the common stockholders of the Company, except to the extent that voting as a separate class or series is required by law.
Redemption
The Series A-1 Convertible Preferred Stock has no redemption rights by the Company, or any other entity.
Preemptive Rights
Holders of the Series A-1 Convertible Preferred Stock and holders of ALT5 Sigma Corporation’s common stock are not entitled to any preemptive, subscription, or similar rights in respect of any securities of the Company, except as set forth in the Amended and Restated Series A-1 Certificate of Designation or in any other document agreed to by ALT5 Sigma Corporation.
Protective Provisions
Without first obtaining the affirmative approval of a majority of the holders of the shares of Series A-1 Convertible Preferred Stock, the Company may not directly or indirectly (i) increase or decrease (other than by redemption or conversion) the total number of authorized shares of Series A-1 Convertible Preferred Stock; (ii) effect an exchange, reclassification, or cancellation of all or a part of the Series A-1 Convertible Preferred Stock, but excluding a stock split or
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
reverse stock split or combination of the common stock or preferred stock; (iii) effect an exchange, or create a right of exchange, of all or part of the shares of another class of shares into shares of Series A-1 Convertible Preferred Stock; or (iv) alter or change the rights, preferences or privileges of the shares of Series A-1 Convertible Preferred Stock so as to affect adversely the shares of such series, including the rights set forth in this Designation; provided, however, that we may, without any vote of the holders of shares of the Series A-1 Convertible Preferred Stock, make technical, corrective, administrative or similar changes to the Amended and Restated Series A-1 Certificate of Designation that do not, individually or in the aggregate, materially adversely affect the rights or preferences of the holders of shares of the Series A-1 Convertible Preferred Stock.
Series B Preferred Stock
History
On May 15, 2024 the Company acquired acquired its ALT5 Subsidiary by way of merger (see Note 3). the Company tendered to the owners of ALT5 Subsidiary 34,250 shares of the Company’s Series B Preferred Stock valued at approximately $8.6 million.
Conversion
Series B Preferred Stock are not be convertible into any class or series of capital stock of the Company. As of the year ended December 28, 2024, 34,207 shares of Series B Preferred Stock were outstanding.
Dividends
The Company shall not declare, pay, or set aside any dividends on shares of Series B Preferred Stock.
Voting Rights
Except as required by the General Corporation Law of the State of Nevada, the Series B Preferred Stock shall not have any voting rights.
Redemption
The Series B Preferred Stock has no redemption rights by ALT5 Sigma Corporation, or any other entity.
Preemptive Rights
Holders of Series B Preferred Stock and holders of Common Stock are not be entitled to any preemptive, subscription, or similar rights in respect of any securities of the Company.
Protective Provisions
Without first obtaining the affirmative approval of a majority of the holders of the shares of Series B Preferred Stock, the Company may not directly or indirectly (i) increase or decrease (other than by redemption or conversion) the total number of authorized shares of Series B Preferred Stock; (ii) effect an exchange, reclassification, or cancellation of all or a part of the Series B Preferred Stock, but excluding a stock split or reverse stock split or combination of the common stock or preferred stock; (iii) effect an exchange, or create a right of exchange, of all or part of the shares of another class of shares into shares of Series B Preferred Stock; (iv) permit the convertibility, whether mandatory or permissible, of some or all of the then-outstanding shares of Series B Preferred Stock, or (v) alter or change the rights, preferences or privileges of the shares of Series B Preferred Stock so as to affect adversely the shares of such series, including the rights set forth in this Designation; provided, however, that we may, without any vote of the holders of shares of the Series B Preferred Stock,
ALT5 SIGMA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
make technical, corrective, administrative or similar changes that do not, individually or in the aggregate, materially adversely affect the rights or preferences of the holders of shares of the Series B Preferred Stock.
Series I Convertible Preferred Stock
History
In connection with its acquisition of ALT5 Subsidiary (see Note 3), on December 2, 2024, the Company tendered 17,000 shares of Series I Convertible Preferred Stock to two consultants of ALT5 Subsidiary.
Conversion
The Series I Convertible Preferred Stock is subject to a mandatory eight-calendar-quarter leak-out, such that no more than twelve-and-one-half percent of the shares may be converted into shares of the Company’s common stock on a trailing quarterly basis over a period of two years, and are subject to vesting provisions. The conversion ratio per share of the Series I Convertible Preferred Stock shall be one hundred shares of the Company’s common stock for each share of Series
ALT5 SIGMA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
I Convertible Preferred Stock subject to certain adjustments. As of the year ended December 28, 2024, 17,000 shares of Series I Convertible Preferred Stock were outstanding.
Dividends
Following the Original Issue Date, the holders of this series of Preferred Stock shall be entitled to receive dividends on an as-converted into-Common Stock basis contemporaneously with the declaration and payment to the holders of Common Stock.
Voting Rights
Except as required by the General Corporation Law of the State of Nevada, the Series I Convertible Preferred Stock shall not have any voting rights.
Redemption
The Certificate of Designation for the Series I Convertible Preferred Stock does not provide any redemption rights by ALT5 Sigma Corporation, or any other entity.
Preemptive Rights
The Certificate of Designation for the Series I Convertible Preferred Stock does not provide the holders thereof with any preemptive, subscription, or similar rights in respect of any securities of the Company.
Protective Provisions
The Certificate of Designation for the Series I Convertible Preferred Stock does not provide the holders thereof with any protective provisions in their favor for so long as shares of such series remain outstanding.
Series M Preferred Stock
History
In connection with its acquisition of ALT5 Subsidiary (see Note 3), the Company issued 3,200 shares of Series M Preferred Stock to two entities that acted as finders for the transaction.
Conversion
Series M Preferred Stock shall not be convertible into any class or series of capital stock of the Company. As of the year ended December 28, 2024, 3,200 shares of Series M Preferred Stock were outstanding.
Dividends
The Company shall not declare, pay, or set aside any dividends on shares of Series M Preferred Stock.
Voting Rights
Except as required by the General Corporation Law of the State of Nevada, the Series M Preferred Stock shall not have any voting rights.
Redemption
The Series M Preferred Stock has no redemption rights by ALT5 Sigma Corporation, or any other entity.
Preemptive Rights
Holders of Series M Preferred Stock and holders of Common Stock shall not be entitled to any preemptive, subscription, or similar rights in respect of any securities of the Company.
Protective Provisions
Without first obtaining the affirmative approval of a majority of the holders of the shares of Series M Preferred Stock, the Company may not directly or indirectly (i) increase or decrease (other than by redemption or conversion) the total number of authorized shares of Series M Preferred Stock; (ii) effect an exchange, reclassification, or cancellation of all or a part of
ALT5 SIGMA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
the Series M Preferred Stock, but excluding a stock split or reverse stock split or combination of the common stock or preferred stock; (iii) effect an exchange, or create a right of exchange, of all or part of the shares of another class of shares into shares of Series M Preferred Stock; (iv) permit the convertibility, whether mandatory or permissible, of some or all of the then-outstanding shares of Series M Preferred Stock, or (v) alter or change the rights, preferences or privileges of the shares of Series M Preferred Stock so as to affect adversely the shares of such series, including the rights set forth in this Designation; provided, however, that we may, without any vote of the holders of shares of the Series M Preferred Stock, make technical, corrective, administrative or similar changes that do not, individually or in the aggregate, materially adversely affect the rights or preferences of the holders of shares of the Series M Preferred Stock.
Series Q Convertible Preferred Stock
History
On November 6, 2024 acquired the Qodex Cryptocurrency Exchange Software platform and other related assets from Qoden Technologies, LLC by way of an asset purchase agreement (see Note 3). The Company tendered to the owners of Qoden Technologies, LLC 771,010 shares of the Company’s Series Q Convertible Preferred Stock valued at approximately $1.3 million. Additionally, the Company tendered and additional 154,202 shares of the Company’s Series Q Convertible Preferred Stock to a third-party contractor to act as a consultant in implementing and enhancing the platform.
Conversion
The Series Q Convertible Preferred Stock was valued at $2.594 per share on the date issued, and is subject to a mandatory eight-calendar-quarter leak-out, such that no more than twelve-and-one-half percent of the shares may be converted into shares of the Company’s common stock on a trailing quarterly basis over a period of two years, and are subject to vesting provisions. The conversion ratio per share of the Series Q Convertible Preferred Stock shall be one share of the Company’s common stock for each share of Series Q Convertible Preferred Stock subject to certain adjustments. As of the year ended December 28, 2024, 925,212 shares of Series Q Convertible Preferred Stock were outstanding.
Dividends
Following the Original Issue Date, holders of Series Q Convertible Preferred Stock shall not be entitled to receive any dividends.
Voting Rights
Except as required by the General Corporation Law of the State of Nevada, the Series Q Convertible Preferred Stock shall not have any voting rights.
Redemption
The Series Q Convertible Preferred Stock has no redemption rights by ALT5 Sigma Corporation, or any other entity.
Preemptive Rights
Holders of Series Q Convertible Preferred Stock and holders of Common Stock shall not be entitled to any preemptive, subscription, or similar rights in respect of any securities of the Company.
Protective Provisions
Without first obtaining the affirmative approval of a majority of the holders of the shares of Series Q Convertible Preferred Stock, the Company may not directly or indirectly (i) increase or decrease (other than by redemption or conversion) the total number of authorized shares of Series Q Convertible Preferred Stock; (ii) effect an exchange, reclassification, or cancellation of all or a part of the Series Q Convertible Preferred Stock, but excluding a stock split or reverse stock split or combination of the common stock or preferred stock; (iii) effect an exchange, or create a right of exchange, of all or part of the shares of another class of shares into shares of Series Q Preferred Stock; (iv) permit the convertibility, whether mandatory or permissible, of some or all of the then-outstanding shares of Series B Preferred Stock, or (v) alter or change the rights, preferences or privileges of the shares of Series Q Convertible Preferred Stock so as to affect adversely the shares of such series, including the rights set forth in this Designation; provided, however, that we may, without any vote of the holders of shares of the Series Q Convertible Preferred Stock, make technical, corrective, administrative or similar
ALT5 SIGMA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
changes that do not, individually or in the aggregate, materially adversely affect the rights or preferences of the holders of shares of the Series Q Convertible Preferred Stock.
Series V Convertible Preferred Stock
History
On May 4, 2024, entered into an Asset Purchase Agreement for the purchase of specified assets of an unaffiliated third-party (see Note 18). In connection with this transaction, the Company tendered 5,000 shares of the Company's Series V Convertible Preferred Stock.
Conversion
The conversion ratio per share of the Series V Convertible Preferred Stock in connection with any Conversion shall be at a ratio of 1:1, meaning every one share of Series V Convertible Preferred Stock, if and when converted into shares of Common Stock, shall convert into one share of Common Stock. Each Holder shall have the right, exercisable at any time and from time to time, unless otherwise prohibited by law, rule, or regulation, to convert any or all of such Holder’s shares of Series V Convertible Preferred Stock into shares of Common Stock at the Conversion Ratio. As of the year ended December 28, 2024, 5,000 shares of Series Q Convertible Preferred Stock were outstanding.
Dividends
Shares of Series V Convertible Preferred Stock do not have dividend rights.
Voting Rights
The Holder of each share of Series V Convertible Preferred Stock shall have such number of votes as is determined by multiplying (a) the number of shares of Series V Convertible Preferred Stock held by such Holder by (b) one. Such voting calculation is hereby authorized by the Company and the Company acknowledges such calculation may result in the total number of possible votes cast by the Series V Convertible Preferred Stock Holders and all other classes of the Company’s Common Stock in any given voting matter exceeding the total aggregate number of shares that this Company shall have authority to issue.
Redemption
The Series V Convertible Preferred Stock has no redemption rights by ALT5 Sigma Corporation, or any other entity.
Preemptive Rights
Holders of Series V Convertible Preferred Stock and holders of Common Stock shall not be entitled to any preemptive, subscription, or similar rights in respect of any securities of the Company.
Protective Provisions
Without first obtaining the affirmative approval of a majority of the holders of the shares of Series V Convertible Preferred Stock, the Company may not directly or indirectly (i) increase or decrease (other than by redemption or conversion) the total number of authorized shares of Series V Convertible Preferred Stock; (ii) effect an exchange, reclassification, or cancellation of all or a part of the Series V Convertible Preferred Stock, but excluding a stock split or reverse stock split or combination of the common stock or preferred stock; (iii) effect an exchange, or create a right of exchange, of all or part of the shares of another class of shares into shares of Series V Preferred Stock; (iv) permit the convertibility, whether mandatory or permissible, of some or all of the then-outstanding shares of Series V Preferred Stock, or (v) alter or change the rights, preferences or privileges of the shares of Series V Convertible Preferred Stock so as to affect adversely the shares of such series, including the rights set forth in this Designation; provided, however, that we may, without any vote of the holders of shares of the Series V Convertible Preferred Stock, make technical, corrective, administrative or similar
ALT5 SIGMA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
changes that do not, individually or in the aggregate, materially adversely affect the rights or preferences of the holders of shares of the Series V Convertible Preferred Stock.
Series S Convertible Preferred Stock
History
On December 28, 2022 the Company acquired Soin Therapeutics by way of merger. In connection with this transaction, with a potential value of up to $30 million, the Company tendered 100,000 shares of the Company's Series S Convertible Preferred Stock.
Conversion
Initially, Dr. Soin was entitled to convert up to three million dollars of value of the Series S Stock into shares of the Company’s common stock commencing one year from the closing and may also convert up to an additional $10 million of value of the Series S Stock into shares of the Company's common stock from and after the sooner of (y) the issuance by the FDA of New Drug Approval for low-dose naltrexone for treating pain or (z) 10 years from the closing. Further, during the 10-year period following the closing, Dr. Soin may convert up to an additional $17 million of value at a rate of five percent of the gross revenues that the Company receives in connection with sales or license revenue from the product.
Dr. Soin further agreed to certain restrictions on the maximum number of shares of Series S Stock that he may ultimately keep or that he may convert into shares of our common stock or sell into the public markets at any given time: (i) Dr. Soin may not convert shares of Series S Stock into shares of the Company's common stock in an amount such that, upon any such conversion, he beneficially own shares of the Company's common stock in excess of 4.99% of the Company's then-outstanding common stock and (ii) during the five-year period that commences on the date that Dr. Soin is first eligible to convert any shares of Series S Stock into shares of the Company's common stock, he will not dispose of any of such shares into the public markets in an amount that exceeds five percent of the daily trading volume of the Company's common stock during any trading day.
Shares of Series S Convertible Preferred Stock are convertible into the Company’s common shares at a ratio of 1:1. During the year ended December 28, 2024, in connection with the amended agreement disclosed in Note 3, the Company reclassified approximately $2.7 million from mezzanine equity to current liabilities, and approximately $8.0 million from mezzanine equity to permanent equity (see Note 3). As of December 28, 2024 and December 30, 2023, there were 100,000 shares of Series S Convertible Preferred Stock outstanding, as reflected in the following (dollars in $000’s):
Series S Preferred Stock
Shares Amount
Balance, December 31, 2022 100,000 $ 14,510
Balance, December 30, 2023 100,000 100000 14,510
Reclassification to permanent equity 0 $ (7,993)
Reclassification to current liabilities 0 $ (2,661)
Balance, December 28, 2024 100,000 $ 3,856
Dividends
Shares of Series S Convertible Preferred Stock do not have dividend rights.
Voting Rights
The Holder of each share of Series S Convertible Preferred Stock shall have one vote for such share. With respect to any stockholder vote, the Holder shall have full voting rights and powers equal to the voting rights and powers of the Common Stock stockholders, and shall be entitled to notice of any stockholders' meeting in accordance with the Bylaws of the Company, and shall be entitled to vote, together with Common Stock stockholders, with respect to any question upon which the Common Stock stockholders have the right to vote. The Holders of Series S Convertible Preferred Stock shall vote together with all other classes and series of common and preferred stock of the Company as a single class on all actions to be taken by the Common Stock stockholders, except to the extent that voting as a separate class or series is required by law.
ALT5 SIGMA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Redemption
The Series S Convertible Preferred Stock has no redemption rights by ALT5 Sigma Corporation, or any other entity.
Preemptive Rights
Holders of the Series S Convertible Preferred Stock and holders of ALT5 Sigma Corporation common stock are not entitled to any preemptive, subscription, or similar rights in respect of any securities of ALT5 Sigma Corporation, except as set forth in the Amended and Restated Series A-1 Certificate of Designation or in any other document agreed to by ALT5 Sigma Corporation.
Protective Provisions
Without first obtaining the affirmative approval of a majority of the holders of the shares of Series S Convertible Preferred Stock, the Company may not directly or indirectly (i) increase or decrease (other than by redemption or conversion) the total number of authorized shares of Series S Convertible Preferred Stock; (ii) effect an exchange, reclassification, or cancellation of all or a part of the Series S Convertible Preferred Stock, but excluding a stock split or reverse stock split or combination of the common stock or preferred stock; (iii) effect an exchange, or create a right of exchange, of all or part of the shares of another class of shares into shares of Series S Convertible Preferred Stock; (iv) issue additional shares of Series S Convertible Preferred Stock other than in connection with the merger agreement, or (v) alter or change the rights, preferences or privileges of the shares of Series S Convertible Preferred Stock so as to affect adversely the shares of such series, including the rights set forth in this Designation; provided, however, that we may, without any vote of the holders of shares of the Series S Convertible Preferred Stock, make technical, corrective, administrative or similar changes to the Amended and Restated Series S Certificate of Designation that do not, individually or in the aggregate, materially adversely affect the rights or preferences of the holders of shares of the Series S Convertible Preferred Stock.
Note 18: Stockholders’ Equity
Common Stock: The Company's Articles of Incorporation authorize 200,000,000 shares of common stock that may be issued from time to time having such rights, powers, preferences and designations as the Board of Directors may determine. As of December 28, 2024, and December 30, 2023, there were 15,417,687 and 4,957,647 shares, respectively, of common stock issued and outstanding.
Equity Offerings: On March 22, 2023, the Company entered into a Securities Purchase Agreement with certain institutional investors for the sale by the Company in a registered direct offering of 361,000 shares of the Company’s common stock, par value $0.001 per share, at a purchase price per share of Common Stock of $1.17. The offering closed on March 24, 2023. The aggregate gross proceeds for the sale of the shares of Common Stock were approximately $422,000, before deducting the placement agent fees and related expenses. The Company utilized the net proceeds for working capital and general corporate purposes.
On August 18, 2023, the Company entered into a Securities Purchase Agreement with a certain institutional investor for the sale by the Company in a registered direct offering of: (i) 418,000 shares of the Company’s common stock, par value $0.001 per share, at an offering price of $0.8811 per share and (ii) pre-funded warrants exercisable for up to 481,348 shares of Common Stock to the Investor at an offering price equal to $0.8801 per pre-funded Warrant. In connection with the Securities Purchase Agreement, during the year ended December 28, 2024, the Company issued 27,738 shares of its common stock to three third-parties in exchange for brokerage services.
On February 23, 2024, the Company entered into Unit Purchase Agreements with two otherwise unaffiliated third-party investors, pursuant to which each Investor agreed to purchase 408,163 units of securities from the Company, at a price per Unit of $0.7350, for an aggregate purchase price of $300,000 per investor for an aggregate price of $600,000. Each Unit consists of one share of the Company’s common stock and one warrant to purchase an additional share of common stock. The per-Unit price is allocated as follows: $0.61 per share of common stock and $0.125 per Warrant. The Warrant has a three-year term and will be immediately exercisable. Each Warrant is exercisable at $0.61 per share. The Company utilized the proceeds from the Unit Purchases for its working capital needs. Further, the Company issued an additional 81,632 shares of its common stock to another party in exchange for brokerage services rendered.
On March 4, 2024, the Company entered into a two-year Consulting Agreement (the “Consulting Agreement”) with Jon Isaac, pursuant to which he will provide a variety of services to the Company. In connection with the Consulting Agreement, the Company issued to Mr. Isaac 200,000 restricted shares of its common stock (see Note 20).
ALT5 SIGMA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On March 22, 2024, pursuant to the terms and conditions of a promissory note, the Company converted $183,000 of obligations into 300,000 shares of the Company’s common stock (see Note 20).
On March 25, 2024, pursuant to the terms and conditions of a promissory note, the Company converted $183,000 of obligations into 300,000 shares of the Company’s common stock (see Note 20).
On April 10, 2024, pursuant to the terms and conditions of a promissory note, the Company converted $60,900 of obligations into 100,000 shares of the Company’s common stock (see Note 20).
On April 12, 2024, pursuant to the terms and conditions of a promissory note, the Company converted $60,900 of obligations into 100,000 shares of the Company’s common stock (see Note 20).
On May 1, 2024, the Company entered into a Securities Purchase Agreement with two institutional investors for the sale by the Company of 79,782 units of the Company’s securities at a purchase price of $3.775 per unit, each unit consisting of one share of the Company’s common stock and one common stock purchase warrant for the purchase of an additional share of Common Stock. Each three-year warrant is exercisable immediately at an exercise price of $3.63 per share. The gross proceeds were approximately $300,000, before deducting related expenses.
On May 4, 2024, the Company entered into an Asset Purchase Agreement for the purchase of specified assets of an unaffiliated third-party. For the purchase of the assets, the Company (i) issued 300,000 restricted shares of its common stock, (ii) issued 5,000 shares of its Series V Convertible Preferred Stock, and (iii) granted a three-year warrant for the purchase of up to 125,000 shares of its common stock at an exercise price of $1.25 per share.
On May 15, 2024, the Company acquired ALT5 Subsidiary. As consideration under the acquisition, the Company issued 1,799,100 shares of its common stock to the legacy equity holders of the capital stock of ALT5 (see Note 3).
On June 3, 2024, the Company entered into a six-month marketing agreement with a non-affiliated third-party, pursuant to which the third-party will provide a variety of marketing-related services to the Company. In connection with the marketing agreement, the Company issued to the third-party 47,923 shares of its common stock.
On June 6, 2024, the Company entered into a one-year consulting agreement with a non-affiliated third-party, pursuant to which the third party will provide a variety of finance and investor-related services to the Company. In connection with the marketing agreement, the Company issued to the third-party 150,000 shares of its common stock.
On September 18, 2024, the Company entered into a six-month marketing agreement with a non-affiliated third-party, pursuant to which the third-party will provide a variety of marketing-related services to the Company. In connection with the marketing agreement, the Company issued to the third-party 20,000 shares of its common stock.
During October 2024, the Company issued 225,000 shares of its common stock as prepayment of one year’s interest on its Bitcoin loan.
In connection with the Big/Small Debenture (see Note 15), on October 18, 2024, the Company issued an additional 25,000 shares of its common stock to another party in exchange for brokerage services rendered.
During the fourth quarter of the fiscal year ended December 28, 2024, the Company issued 290,908 shares of its common stock related to the exercise of warrants under Big/Small Debenture (see Note 15).
On July 1, 2024, the Company entered into a one-year consulting agreement with a non-affiliated third-party, pursuant to which the third-party will provide a variety of communication-related consulting services to the Company. In connection with the marketing agreement, on December 3, 2024, the Company issued to the third-party 60,000 shares of its common stock.
ALT5 SIGMA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On December 23, 2024, pursuant to the terms of his Consulting Agreement, Mr. Isaac converted the existing obligation on the convertible promissory note, in the amount of approximately $540,000, into 465,753 shares of the Company’s common stock (see Note 16).
On December 23, 2024, pursuant to the terms of the judgment and forbearance agreements, a non-affiliated third-party converted the existing obligation plus accrued interest due under the agreements, in the amount of approximately $691,000, into 265,842 shares of the Company’s common stock (see Note 15).
During the year ended December 28, 2024, the Company issued an aggregate of 341,175 shares of its common stock to four individuals under the Company’s 2023 Equity Incentive Plan. The aggregate value of the shares at issuance was approximately $1.3 million.
Equity Incentives: The Company’s 2024 Plan, which was adopted by the Board in November 2024 and approved by the stockholders at the 2024 annual meeting of stockholders, replaces the 2023 Plan, which replaced the 2016 Plan, which replaced the 2011 Plan. Under the 2024 Plan, the maximum aggregate number of shares, which may be subject to or delivered under Awards granted under the Plan is 2,800,000 shares. Awards may be in the form of a Stock Award, Option, Stock Appreciation Right, Stock Unit, or Other Stock-based Award granted in accordance with the terms of the respective Plan. During the year ended December 28, 2024, there were no grants under the 2024 Plan.
The Company’s 2023 Plan, which was adopted by the Board in August 2023 and approved by the stockholders at the 2023 Annual Meeting of Stockholders, replaces the 2016 Plan, which replaced the 2011 Plan. Under the 2023 Plan, the maximum aggregate number of shares, which may be subject to or delivered under Awards granted under the Plan is two million (2,000,000) shares. Awards may be in the form of a Stock Award, Option, Stock Appreciation Right, Stock Unit, or Other Stock-based Award granted in accordance with the terms of the respective Plan. During the year ended December 28, 2024, the Company recognized $1.2 million and in share-based compensation expense related to the 908,852 RSU’s that were awarded and immediately vested, as well as 295,000 shares of the Company’s common stock issued (see above).
The Company’s 2016 Plan authorizes the granting of awards in any of the following forms: (i) incentive stock options, (ii) nonqualified stock options, (iii) restricted stock awards, and (iv) restricted stock units, and expires on the earlier of October 28, 2026, or the date that all shares reserved under the 2016 Plan are issued or no longer available. On November 4, 2020, the Company amended the 2016 Plan to increase the issuance of common shares from 400,000 to 800,000. The vesting period is determined by the Board of Directors at the time of the stock option grant. As of December 28, 2024 and December 30, 2023, 100,000 options were outstanding under the 2016 Plan.
The Company’s 2011 Plan authorizes the granting of awards in any of the following forms: (i) stock options, (ii) stock appreciation rights, and (iii) other share-based awards, including but not limited to, restricted stock, restricted stock units or performance shares, and expired on the earlier of May 12, 2021, or the date that all shares reserved under the 2011 Plan are issued or no longer available. As of December 28, 2024 and December 30, 2023, 8,000 and 14,000 options, respectively, were outstanding under the 2011 Plan. No additional awards will be granted under the 2011 Plan.
The following table summarizes stock option activity for the fiscal years ended December 28, 2024, and December 30, 2023 (Aggregate Intrinsic Value in $000’s):
Options
Outstanding Weighted
Average
Exercise
Price Aggregate
Intrinsic
Value Weighted
Average
Remaining
Contractual
Life
Outstanding at December 31, 2022 110,000 $ 6.27 $ - 6.5
Granted 10,000 1.53
Cancelled/expired (6,000)
Outstanding at December 30, 2023 114,000 5.68 - 6.1
Cancelled/expired (6,000) -
Outstanding at December 28, 2024 108,000 $ 5.03 $ 68 5.5
Exercisable at December 28, 2024 60,000 $ 3.32 $ 68 5.8
ALT5 SIGMA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The exercise price for stock options outstanding and exercisable outstanding at December 28, 2024 is as follows:
Outstanding Exercisable
Number of Options Exercise Price ($) Number of Options Exercise Price ($)
42,000 $5.70 to $9.90
10,000 $5.70 to $9.90
66,000 $3.54 to $5.25
50,000 $3.54 to $5.25
108,000 60,000
The Company recognized share-based compensation expense related to equity incentive awards of approximately $1.7 million and approximately $14,000 for the fiscal years ended December 28, 2024, and December 30, 2023, respectively. As of December 28, 2024, the Company had no unrecognized share-based compensation expense, and there were no non-vested shares associated with stock option awards.
Note 19: Income taxes
For fiscal years ended December 28, 2024, and December 30, 2023, the Company recorded an income tax benefit from continuing operations of approximately $3.0 million and an income tax benefit of $0.4 million, respectively, and an income tax provision from discontinued operations of $0 and approximately $1.0 million, respectively, which consisted of the following (in $000’s):
Fiscal Years Ended
December 28, 2024 December 30, 2023
Current tax expense:
State $ (102) $ -
Federal (44) 98
Foreign 334 -
Current tax expense 188 98
Deferred tax (benefit) provision (3,229) 444
Total (benefit) provision of income taxes $ (3,041) $ 542
A reconciliation of the Company's income tax benefit (provision) with the federal statutory tax rate for the fiscal years ended December 28, 2024, and December 30, 2023, respectively, is shown below:
Fiscal Years Ended
December 28, 2024 December 30, 2023
U.S. statutory rate 21.0 % 21.0 %
State tax rate 0.9 % 1.5 %
Foreign rate differential 4.4 % 0.5 %
Permanent differences -6.7 % -0.1 %
Impact of sale of ARCA Recycling and Canada - % -4.4 %
Change in valuation allowance 12.9 % -25.7 %
Other 0.2 % -0.1 %
32.7 % -7.3 %
Income (loss) before provision of income taxes was derived from the following sources for fiscal years December 28, 2024 and December 30, 2023, respectively, as shown below (in $000’s):
ALT5 SIGMA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fiscal Years Ended
December 28, 2024 December 30, 2023
United States $ (12,825) $ (6,613)
Canada 3,539 (657)
Total $ (9,286) $ (7,270)
The components of net deferred tax assets (liabilities) as of December 28, 2024 and December 30, 2023, respectively, are as follows (in $000’s):
December 28, 2024 December 30, 2023
Deferred tax assets (liabilities):
Accrued expenses $ 152 $ 7
Allowance for bad debts 53 -
Accrued compensation 35 3
Section 174 expenses 43 61
Prepaid expenses (128) (16)
Net operating loss 7,586 5,360
Lease liability 33 -
Tax credits - 3
Share-based compensation 114 136
Intangibles (6,909) (3,747)
Right-of-use assets (33) -
Installment sale - -
Unrealized losses 794 327
Section 163(j) interest 138 -
1,878 2,134
Less: valuation allowance (2,919) (2,773)
Net deferred tax liabilities $ (1,041) $ (639)
As of December 28, 2024, the Company has net operating loss carryforwards of approximately $19.5 million for federal income tax purposes, and approximately $11.8 million for state income tax purposes, which will be available to offset future taxable income. Due to recent tax legislation, the federal net operating losses are eligible for indefinite carryforward, limited by certain taxable income limitations. State net operating losses begin to expire in 2032. The Company evaluates all available evidence to determine if a valuation allowance is needed to reduce its deferred tax assets. During the fourth quarter of fiscal year 2023, management concluded that a valuation allowance is necessary for the state net operating loss carryforward and a portion of the federal net operating loss carryforward. Due to the 2023 sale of ARCA Canada (as part of the Recycling Subsidiaries transaction), the valuation allowance was released. The Company has recorded a valuation allowance of approximately $2.9 million as of December 28, 2024, and December 30, 2023.
The Company annually conducts an analysis of its uncertain tax positions and has concluded that it has no uncertain tax positions as of December 28, 2024. The Company’s policy is to record uncertain tax positions as a component of income tax expense.
The Company files U.S. and state income tax returns in jurisdictions with differing statutes of limitations. The 2021 through 2024 tax years remain subject to selection for examination as of December 28, 2024. None of the Company’s income tax returns are currently under audit.
ALT5 SIGMA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 20: Related parties
Shared Services
Tony Isaac, the Company’s President, is the father of Jon Isaac, President and Chief Executive Officer of Live Ventures and managing member of ICG. Tony Isaac and Richard Butler, Board of Directors members of the Company, are members of the Board of Directors of Live Ventures. The Company also shares certain executive, accounting and legal services with Live Ventures. The total services shared were approximately $144,000 and approximately $203,000 for fiscal years ending December 28, 2024 and December 30, 2023, respectively. Customer Connexx rented approximately 9,900 square feet of office space from Live Ventures in Las Vegas, Nevada. Effective August 2023, due to the winding down of operations of the Recycling Subsidiaries, the Company ceased leasing office space in the Las Vegas, Nevada facility. The total rent and common area expenses for Connexx at the Las Vegas, Nevada office were approximately $17,000 and approximately $103,000 for fiscal years ending December 28, 2024 and December 30, 2023, respectively.
During Q4 2023, operations of the Recycling Subsidiaries were wound down and, ultimately, ceased. See Note 4. Consequently, outstanding liabilities for shared rent and services for the Recycling Subsidiaries reverted to the Company. As such, the Company has recorded a liability in the amount of approximately $258,000, which was offset against the gain on sale of the Recycling Subsidiaries.
Notes with Live Ventures and ICG
On February 7, 2024, the Company entered into a promissory notes with each of Live Ventures and ICG. The initial principal amount of each note is $300,000, with an interest rate of 10% per annum. Pursuant to an amendment to each note, $100,000 of principal, and accrued interest thereon, is due on September 7, 2024 for each note, and the balance of each note is due on December 31, 2024. At the Company’s option, the obligation under each note is convertible after the six-month anniversary thereof at a per-share conversion price of $0.61, subject to standard adjustments for (i) stock dividends and splits, (ii) subsequent rights offerings, and (iii) pro rata distributions. The Company’s board of directors approved the issuance of the two notes on February 7, 2024. As of December 28, 2024, the principal balances outstanding on each of the promissory notes was $327,000.
Isaac Consulting Agreement
On March 4, 2024, the Company entered into a two-year Consulting Agreement with Jon Isaac, pursuant to which he will provide to the Company (the “Services”): (i) strategic financial advice, including growth strategies, capital allocation, and financial restructuring; (ii) sales and business development advice, including for the acquisition of new clients and new products through networking, referrals, and marketing efforts for our prospective products; (iii) in-depth research and market intelligence on specific industries, sectors, and market trends; (iv) financial models and financial analysis to support strategic decision-making; (v) assistance, through site visits, in the preparation of new client offers and bids for proposed projects; (vi) weekly update calls with management to align on progress of objectives and goals; (vii) enhanced non-confidential materials; (viii) business risk management support; and (ix) other services to which the Company and he may agree that will be memorialized in writing if, when, and as needed during the two-year term.
As compensation for the Services, the Company (i) assigned to him two universal life insurance policies that relate to the life of one of the founders of our now-disposed legacy recycling business (as of March 4, 2024, the first policy had an accumulated value/surrender value of approximately $3,854 and the second had an accumulated value/surrender value of approximately $468); (ii) agreed to tender to him funds in our Canadian counsel’s trust account in the event that the prospective Order of the Court of Appeal for Ontario Canada in the matter styled, Amtim Capital Inc. and Appliance Recycling Centers of America, Case No. COA-23-CV-0156, became the final Order of the Court, which amount we received during the reporting period and tendered to Mr. Isaac $220,000; (iii) issued to him 200,000 restricted shares of our common stock with the per-share value being the average of the Nasdaq Historical NOCP closing price during the five trading days prior to our board approving the Consulting Agreement, which shares were awarded from our 2023 Equity Incentive Plan; and (iv) issued to him a two-year, straight 10.0% convertible promissory note in the initial principal amount of $500,000, with an interest rate of 10.0% and a per-share conversion price equivalent to the per-share value of the restricted common stock that he was granted ($1.16). The maturity date of the promissory note is March 4, 2026. The value of the restricted shares was $232,000 on the date issued. As of December 28, 2024, there was no principal balance outstanding on the promissory note.
ALT5 SIGMA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Short-Term Advances
On April 18, 2024, ICG made a short-term demand advance to the Company in the amount of $100,000. The advance bears interest at a rate of 10% per annum until repaid. As of December 28, 2024, the principal amount outstanding was $48,000.
On May 28, 2024 and June 3, 2024, Novalk made short-term demand advances in the amount of $120,000 and $100,000, respectively, to the Company. Juan Yunis, an employee of Live Ventures, is the managing member of Novalk. The advances bears interest at a rate of 10% per annum until repaid. As of December 28, 2024, the principal amount outstanding was $110,000.
During June 3, 2024, Tony Isaac made a number of short-term demand advances in the aggregate amount of $62,000 to the Company. The advances bears interest at a rate of 10% per annum until repaid. As of December 28, 2024, the Company had repaid the advance in full (see Note 20).
Sale of Recycling Subsidiaries
On March 9, 2023, the Company entered into a Stock Purchase Agreement (the “Recycling Purchase Agreement”) with VM7 Corporation, a Delaware corporation (“VM7”), under which it agreed to acquire all of the outstanding equity interests of the Recycling Subsidiaries consisting of: (a) ARCA Recycling, Inc., (b) ARCA Canada, and (c) Connexx. The principal of VM7 is Virland A. Johnson, our Chief Financial Officer. The sale of all of the outstanding equity interests of the Recycling Subsidiaries to VM7 under the Recycling Purchase Agreement was consummated simultaneously with the execution of the Recycling Agreement. The Company's Board of Directors unanimously approved the Recycling Purchase Agreement and the Disposition Transaction. The Recycling Purchase Agreement is retroactively effective as of March 1, 2023. During the fourth quarter of fiscal 2023, VM7 determined that, after expending significant amounts of time and resources, it was unable to obtain sufficient equity or debt financing to continue the operations of the Recycling Subsidiaries. Accordingly, the Company was advised that the operations of the Recycling Subsidiaries were wound down and, ultimately, ceased. Because the Company did not receive all of the economic benefits of the Disposition Transaction and understands that it will not receive any future benefits of the Disposition Transaction, the Company determined to fully impair the $5.3 million carrying value of the Disposition Transaction on its balance sheet. The Company also determined not to exercise any of its remedies under the Recycling Purchase Agreement so that the Company could maintain its focus on its clinical-stage biopharmaceutical activities.
ICG Note
On August 28, 2019, ARCA Recycling entered into and delivered to ICG a secured revolving line of credit promissory note, whereby ICG agreed to provide ARCA Recycling with a $2.5 million revolving credit facility (the “ICG Note”). Jon Isaac is the manager and sole member of ICG, and the son of Tony Isaac, the President of ALT5 Sigma Corporation and, previously, ARCA Recycling. ICG is a record and beneficial owner of 13.6% of the outstanding common stock of the Company. The ICG Note was originally a component of the sale of the Recycling Subsidiaries in March 2023; however, because of the winding down of operations of the Recycling Subsidiaries during Q4 2023, and because the ICG Note was guaranteed by the Company, it recorded a liability in the amount of approximately $690,000 for the principal balance due on the note, which was offset against the gain on sale of the Recycling Subsidiaries (see Note 4). Additionally, effective February 2024, the ICG Note was amended to reflect the Company as co-maker on the ICG Note (see Note 20). The ICG Note matures in March 2026, and bears interest at 8.75% per annum. Monthly payments on the note are approximately $24,767. As of December 28, 2024 and December 30, 2023, the balance outstanding was $0 and $706,000, respectively.
Note 21: Commitments and Contingencies
Litigation
SEC Complaint
On August 2, 2021, the U.S. Securities and Exchange Commission (“SEC”) filed a civil complaint (the “SEC Complaint”) in the United States District Court for the District of Nevada naming the Company and one of its executive officers, Virland Johnson, the Company's Chief Financial Officer, as defendants (collectively, the “Defendants”). Pursuant to an agreed-upon Order of the Court, on May 28, 2024, the Company settled its litigation with the SEC. The Settlement Agreement provided, in pertinent part: “Without admitting or denying the allegations of the complaint (except as provided herein in paragraph 12 and except as to personal and subject matter jurisdiction, which [the Company] admits), [the Company] hereby consents to the entry of the final Judgment in the form attached hereto (the “Final Judgment”) and
ALT5 SIGMA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
incorporated by reference herein, which, among other things: “(a) permanently restrains and enjoins [the Company] from violation of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder [15 U.S.C. § 78j(b) and 17 C.F.R. §§ 240.10b-5]; and (c)[sic] orders [the Company] to pay a civil penalty in the amount of $250,000 under Section 21(d)(3) of the Exchange Act [15 U.S.C. § 78u(d)(3)).” The SEC has agreed to accept four quarterly payments from the Company, each in the amount of $62,500. The Settlement Agreement is attached to the Order as Exhibit 1, both of which documents may be viewed at https://ecf.nvd.uscourts.gov/doc1/115110470966.
The SEC Complaint's remaining allegations relate to financial, disclosure and reporting violations against the executive officer under Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5. The SEC Complaint also alleges various claims against the executive officer under Sections 13(a), 13(b)(2)(A), 13(b)(2)(B) and 13(b)(5) of the Exchange Act and Rules 12b-20, 13a-1, 13a-13, 13a-14, 13b2-1, and 13b2-2. The SEC continues to seek a permanent injunction, civil penalties, and an officer-and-director bar against the executive officer. The foregoing is only a general summary of the SEC Complaint, which may be accessed on the SEC’s website at https://www.sec.gov/litigation/litreleases/2021/lr25155.htm.
Skybridge
On December 29, 2016, the Company served a Minnesota state court complaint for breach of contract on Skybridge Americas, Inc. (“SA”), the Company’s primary call center vendor throughout 2015 and most of 2016. On April 10 2024, subsequent to the conclusion of litigation at the trial court and appellate court levels, SA sold its judgment to an otherwise unaffiliated third party for the face value of the judgment and the interest accrued thereon through that date (an aggregate of $433,920), plus accrued legal fees (in the amount of $18,124) to which SA was entitled in accordance with the terms of the underlying agreement with the Company and with the judgment. The purchaser agreed to forbear from enforcing the judgment, subject to the Company’s repayment or his conversion thereof. In connection with the third-party’s forbearance, the Company issued its promissory note to such person in the initial principal amount of $147,956, which bears interest at the rate of 10% per annum, and, as with the underlying judgment, is convertible into shares of the Company’s common stock at a fixed per-share conversion price of $2.60. On December 23, 2024, pursuant to the terms of the agreement, the unaffiliated third party converted the obligation, plus accrued interest under the agreements, in the amount of approximately $691,000, into 265,842 shares of the Company’s common stock (see Note 18). As of December 28, 2024, there was no balance outstanding.
GeoTraq
On or about April 9, 2021, GeoTraq, Gregg Sullivan, Tony Isaac, and the Company, among others, resolved all of the claims that related to, among other items, the Company's acquisition of GeoTraq in August 2017, all post-acquisition activities, and Mr. Sullivan’s post-acquisition employment relationship with GeoTraq (all of such claims, the “GeoTraq Matters”). The resolution was effectuated through the parties’ execution and delivery of a Settlement Agreement and Mutual Agreement of Claims (the “GeoTraq Settlement Agreement”).
The parties to the Settlement Agreement released and forever discharged one another from any and all known and unknown claims that were asserted or could have been asserted arising out of the GeoTraq Litigation Matters. The accrued liability for payments due to Mr. Sullivan is $0 and $510,000 as of December 28, 2024 and December 30, 2023, respectively.
Alixpartners, LLC
On October 19, 2022, Alixpartners, LLC filed a complaint in the Supreme Court of the State of New York, County of New York, styled Alixpartners, LLC, plaintiff/petitioner, against JanOne Inc., Index No. 653877/2022. Plaintiff alleged the breach of an agreement and sought damages in the amount of approximately $345,000. The Company denied that obligation. After extensive negotiations, the parties reached a settlement, pursuant to which the Company agreed to pay to Alixpartners the sum of $125,000 in two tranches and to provide a confession of judgment in its favor in the amount of approximately $450,000, which represented the amount sought in the complaint plus interest thereon. The confession of judgment will be null and void and the complaint will be dismissed with prejudice upon the Company tendering both tranches timely. The Company tendered both settlement payments in May 2023, and the complaint was subsequently dismissed.
Sieggreen
In a matter pending in the United States District Court for the District Of Nevada, Case No. 2:21-cv-01517-CDS-EJY, styled as Sieggreen, Individually and On Behalf of All Others Similarly Situated, Plaintiff, v. Live Ventures Incorporated,
ALT5 SIGMA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Jon Isaac, and Virland A. Johnson, Defendants, the Company was added as a defendant on March 6, 2023, and was served on March 23, 2023. Plaintiff has alleged causes of action against the Company for (i) violation of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder and (ii) violation of Section 10(b) of the Securities Exchange Act of 1934 and Rules 10b-5(a) and 10b-5(c) promulgated thereunder. In June 2023 the Company filed a Motion to Dismiss, regarding which, as of the date of these financial statements, the Court has not ruled. The Company strongly disputes and denies all of the allegations contained therein and will continue to defend itself vigorously against the claims.
Main/270
The Company is a defendant in an action filed on April 11, 2022, in the U.S. District Court Southern District of Ohio, Eastern Division, styled, Trustees Main/270, LLC, Plaintiff, vs ApplianceSmart, Inc. and JANONE, Inc., Defendant, Case no.: 2:22-cv-01938-ALM-EPD. The Company was a guarantor of the lease between the Plaintiff and ApplianceSmart, Inc. Plaintiff alleged a cause of action against the Company in respect of the guaranty and seeks approximately $90,000 therefor. Plaintiff also seeks approximately $1,420,000 against ApplianceSmart and the Company on a joint and several basis. The Company does not believe that it is obligated to Plaintiff in that amount and the parties continue to negotiate a potential settlement.
Westerville Square
In an attempt to recover payments due under a lease, in 2022, Westerville Square, Inc., as the landlord, initiated a civil action against the Company, styled Westerville Square, Inc. v. Appliance Recycling Centers Of America, Inc., et al., in the Court of Common Pleas of Franklin County, Ohio, Case No. 19 CV 8627. The case was stayed during the bankruptcy proceedings of ApplianceSmart, Inc., and was reinstated on June 7, 2021. The landlord is currently seeking $120,000, which amount is disputed by the Company. Effective June 4, 2023, the parties settled the matter, pursuant to which settlement the Company tendered the sum of $110,000 to the landlord, the parties entered into a Settlement Agreement and Release, and the case was dismissed with prejudice.
Other Commitments
On December 30, 2017, the Company disposed of its retail appliance segment and sold ApplianceSmart to Live Ventures, a related party. In connection with that sale, as of January 1, 2022, the Company accrued an aggregate amount of future real property lease payments of approximately $767,000 which represented amounts guaranteed or which may have been owed under certain lease agreements to three third party landlords in which the Company either remained the counterparty, was a guarantor, or had agreed to remain contractually liable under the lease (“ApplianceSmart Leases”). A final decree was issued by the court on February 28, 2022, upon the full satisfaction of the Plan, at which time ApplianceSmart emerged from Chapter 11. During the year ended December 28, 2024, the Company reversed approximately $637,000 of the accrual, as the Company is no longer liable for two of these guarantees upon ApplianceSmart's emergence from bankruptcy. As of December 28, 2024, a balance of approximately $130,000 remains as an accrued liability due to an ongoing dispute concerning one of the leases. The Company and Live Ventures have agreed to divide in half between them any ultimate balance owing thereunder and any attorneys’ fees expended in relation thereto.
The Company is party from time to time to other ordinary course disputes that we do not believe to be material to our financial condition as of December 28, 2024.
Note 22: Earnings (Loss) per share
Net loss per share is calculated using the weighted average number of shares of common stock outstanding during the applicable period. Basic weighted average common shares outstanding do not include shares of restricted stock that have not yet vested, although such shares are included as outstanding shares in the Company’s Consolidated Balance Sheet. Diluted net earnings per share is computed using the weighted average number of common shares outstanding, and, if dilutive, potential common shares outstanding during the period. Potential common shares consist of the additional common shares issuable with respect to restricted share awards, stock options and convertible preferred stock.
ALT5 SIGMA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents the computation of basic and diluted net loss per share (in $000’s, except per share data):
For the Years Ended
December 28, 2024 December 30, 2023
Continuing Operations
Basic and diluted
Net (loss) income from continuing operations $ (6,245) $ (17,095)
Weighted average common shares outstanding 11,148,493 4,005,334
Basic and diluted (loss) income per share from continuing operations $ (0.56) $ (4.27)
Discontinued Operations
Basic
Net income from discontinued operations $ - $ 9,283
Weighted average common shares outstanding 11,148,493 4,005,334
Basic income per share from discontinued operations $ - $ 2.32
Diluted
Net income from discontinued operations $ - $ 9,283
Weighted average common shares outstanding 11,148,493 4,444,361
Diluted income per share from discontinued operations $ - $ 2.09
Total
Basic and diluted
Net (loss) income $ (6,245) $ (7,812)
Weighted average common shares outstanding 11,148,493 4,005,334
Basic and diluted (loss) income per share $ (0.56) $ (1.95)
Potentially dilutive securities totaling approximately 9.0 million and 3.9 million shares, respectively, were excluded from the calculation of diluted net earnings (loss) per share for the years ended December 28, 2024 and December 30, 2023 because the effects were anti-dilutive based on the application of the treasury stock method.
Note 23: Segment information
The Company operates within targeted markets through three reportable segments for continuing operations: Fintech, Biotech, and Corporate and Other. Due the sale of Company’s Recycling segment during March 2023, it is being presented as discontinued operations for the years ended December 28, 2024 and December 30, 2023.
ALT5 SIGMA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following tables present our segment information (in $000’s):
For the Years Ended
December 28, 2024 December 30, 2023
Revenue
Fintech $ 12,532 $ -
Biotech - -
Corporate and other - -
Discontinued operations - 3,795
Total Revenues $ 12,532 $ 3,795
Gross profit
Fintech $ 6,294 $ -
Biotech - -
Corporate and other - -
Discontinued operations - (197)
Total Gross profit $ 6,294 $ (197)
Operating loss
Fintech $ 905 $ -
Biotech (2,148) (1,531)
Corporate and other (6,319) (18,315)
Discontinued operations - 10,438
Total Operating loss $ (7,562) $ (7,562) $ (9,408)
Depreciation and amortization
Fintech $ 1,316 $ -
Biotech 2,086 1,452
Corporate and other - -
Discontinued operations - 96
Total Depreciation and amortization $ 3,402 $ 1,548
Interest (expense) income, net
Fintech $ (499) $ -
Biotech - -
Corporate and other (380) 2,250
Discontinued operations - (181)
Total Interest (expense) income, net $ (879) $ 2,069
Net loss after provision for income taxes
Fintech $ 469 $ -
Biotech (2,086) (1,532)
Corporate and other (4,628) (15,563)
Discontinued operations - 9,283
Total net loss after provision for income taxes $ (6,245) $ (7,812)
ALT5 SIGMA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of
December 28, 2024 As of
December 30, 2023
Assets
Fintech $ 64,217 $ -
Biotech 16,926 17,846
Corporate and other 1,293 641
Discontinue operations - -
Total Assets $ 82,436 $ 18,487
Goodwill and other intangible Assets
Fintech $ 30,385 $ -
Biotech 15,755 17,846
Corporate and other 4 -
Discontinued operations - -
Total goodwill and other intangible Assets $ 46,144 $ 17,846
Note 24: Subsequent events
The Company has evaluated subsequent events through the filing of this Form 10-K, and determined that there have been no events that have occurred that would require adjustments to disclosures in its consolidated financial statements other than as discussed below:

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
None.

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ITEM 9A. CONTROLS AND PROCEDURES
ITEM 9A. 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 December 28, 2024, 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 Securities Exchange Act of 1934 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 Annual Report on Form 10-K present fairly, in all material respects, the financial position, results of operations and cash flows for the periods disclosed in conformity with GAAP. Hudgens CPA, PLLC, the Company’s independent registered public accounting firm, has issued an unqualified opinion on our consolidated financial statements as of and for the year ended December 28, 2024. 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 the Company’s 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: judgements 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 design and effectiveness of our internal control over financial reporting as of December 28, 2024. 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 controls over financial reporting were ineffective as of September 30, 2021. Management noted the following deficiencies that management believes to be material weaknesses:
•The Company does not have sufficient written documentation of our internal control policies and procedures. Written documentation of key internal controls over financial reporting is a requirement of Section 404 of the Sarbanes-Oxley Act; and
•Management does not have sufficient resources to maintain adequate segregation of duties and maintain its internal control environment.
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 27, 2025. 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.
This annual 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 Securities and Exchange Commission that permit us to provide only management’s report in this annual 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 fourth quarter of the fiscal year ended December 28, 2024 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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ITEM 9B. OTHER INFORMATION
ITEM 9B. Other Information
None.

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The directors and executive officers of the Company and their ages as of December 28, 2024, are as follows:
Name Age Position
Peter Tassiopoulos 56 Director and Chief Executive Officer
Tony Isaac 70 Director and President
Richard D. Butler, Jr. 76 Director
Ron Pitters 58 Director
Nael Hajjar 40 Director
John Bitar 50 Director
Vay Tham 51 Chief Revenue Officer
Virland A. Johnson 64 Chief Financial Officer
Peter Tassiopoulos has been our Chief Executive Officer since August 2024. Mr. Tassiopoulos has over 30 years of leadership experience across healthcare, finance, and technology sectors. From April 4, 2022, until his appointment as our Chief Executive Officer, Mr. Tassiopoulos served as an independent mergers and acquisitions (M&A) consultant, consulting for various companies. During that time, he restructured in excess of $150 million in debt and facilitated a $35 million asset purchase for a Canadian public company. Prior to that, from March 2013 through December 1, 2014, Peter served as the Chief Executive Officer of Sphere 3D Corp. (Nasdaq: ANY), and then, from December 1, 2014 until November 14, 2018, as its President, and, from November 14, 2018 to April 2022, as its Chief Executive Officer again. He also served as one of its directors from March 2014 through April 4, 2022. Mr. Tassiopoulos has successfully completed over $1 billion in M&A, divestitures, and financing transactions throughout his career. He has led teams in executing complex transactions with a focus on mergers and acquisitions, capital market strategies, and strategic relationships. His industry experience spans cryptocurrency, technology, IT, healthcare, and gaming. We believe that Mr. Tassiopoulos brings a wealth of experience in finance, mergers and acquisitions and strategic planning to our Board.
Tony Isaac has been one of our directors since May 2015, served as our President since May 2015, and served as our Chief Executive Officer from May 2016 until August 2024; he also became our Corporate Secretary in 2021. He served as our Interim Chief Executive Officer from February 2016 until May 2016. Mr. Isaac has served as Financial Planning and Strategist/Economist of Live Ventures Incorporated (“Live Ventures”) (Nasdaq: LIVE), a holding company for diversified businesses, since July 2012. He is the Chairman and Co-Founder of Isaac Organization, a privately held investment company. Mr. Isaac has invested in various companies, both private and public from 1980 to present. Mr. Isaac’s specialty is negotiation and problem-solving of complex real estate and business transactions. Mr. Isaac has served as a director of Live Ventures since December 2011. Mr. Isaac graduated from Ottawa University in 1981, where he majored in Commerce and Business Administration and Economics. We believe that Mr. Isaac brings to our Board significant investment and financial expertise and public board experience.
Richard D. Butler, Jr. has been one of our directors since May 2015. Mr. Butler is the owner of an advisory firm that provides real estate, corporate, and financial advisory services since 1999, and is the co-Founder, Managing Director, and, since 2005, a major stockholder of Ref-Razzer Company, a whistle manufacturing and vending company. Prior to this, Mr. Butler was the Co-Founder and Executive Vice President of Aspen Healthcare, Inc. from 1996 to 1999. From 1993 to 1996, Mr. Butler was a Managing Director at Landmark Financial and from 1989 to 1993 he was a Partner at Cal Ventures Real Estate Investment Group. Prior to this, Mr. Butler also served as the President and Chief Executive Officer of Mt. Whitney Savings Bank, Chief Executive Officer of First Federal Mortgage Bank, Chief Executive Officer of Trafalgar Mortgage, and Executive Officer and Member of the President’s Advisory Committee at State Savings & Loan Association (peak assets $14 billion) and American Savings & Loan Association (NYSE: FCA; peak assets $34 billion). Mr. Butler has served on the Board of Directors of Live Ventures Incorporated (“Live Ventures”) (Nasdaq: LIVE) since August 2006. Mr. Butler attended Bowling Green University in Ohio, San Joaquin Delta College in California, and Southern Oregon State College. We believe that Mr. Butler brings to our Board extensive experience in financial management and executive roles, which enable him to provide important expertise in financial, operating, and strategic matters that impact our Company.
Ron Pitters has been one of our directors since November 2024. Until January 2025, Ron held executive leadership positions with Axos Financial, Inc. for 11 years, including President and Chief Operating Officer of Axos Digital Assets,
LLC, Business Unit Leader and Chief Operating Officer of Axos Securities, LLC, and President and Chief Operating Officer of Axos Business Center, Inc. (Philippines). Prior to his service with Axos Bank, Mr. Pitters founded and was managing director of MindAlign, LLC. He also has served as the Head of Technology & Transformation (Global Markets & Risk) for OCBC Singapore; Group CIO at the Commercial Bank of Qatar; Business Unit CIO for ABN AMRO Global Markets in Chicago, London, Amsterdam; and Head of Trading (FX/Futures Arbitrage) for ABN AMRO Global Markets. He also currently is an independent director of Cozera, Inc. Ron is an accomplished C-level executive, with over 20 years of experience generating and delivering revenue opportunities, and working in business and corporate development, regulatory compliance, credit and risk management, strategy and architecture and delivery management and has held varying leadership roles, including technology, management consulting, business turnarounds, corporate transformations, and start-ups. His most recent accomplishments include successful start-ups in the captive offshore space, self-direct trading, and digital assets business. Mr. Pitters has completed business turnarounds of a securities clearing firm and a digital robo-advisory business. We believe that Mr. Pitters brings to our Board a broad range of experience that will prove invaluable as we continue to expand our fintech operations.
Nael Hajjar has been one of our directors since August 2018. Mr. Hajjar is currently the Unit Head for the Annual Wholesale Trade Survey in Statistics Canada’s Manufacturing and Wholesale Trade Division. From March 2011 through May 2016, Mr. Hajjar was a Senior Analyst - Economist of Statistics Canada’s Producer Prices Division, where he developed Canada’s first ever Investment Banking Services Price Index while leading the development of a variety of Financial Services Price Index development projects. We believe that Mr. Hajjar brings to our Board extensive experience in research and analysis of financial statistics, economics, and business practices in a variety of industries, including manufacturing, logging, Wholesale Trade, and financial services. We believe that Mr. Hajjar also has extensive experience in project management, and he holds a Bachelor of Social Science, Honors in Economics (which he earned in 2006), and Bachelor of Commerce, Option in Finance (which he earned in 2008), both from the University of Ottawa.
John Bitar has been one of our directors since January 2020. Since 2012, Mr. Bitar has been providing consulting services to companies and clients on business and legal strategies, management, operations, and cost controls. From 2007 to 2012, Mr. Bitar co-founded and was Managing Partner of a worker’s compensation law firm. Mr. Bitar has been an attorney admitted to the California State Bar since 1999. Mr. Bitar graduated from the University of Southern California in 1996 and earned his Juris Doctorate Degree in 1999 from University of the Pacific, McGeorge School of Law. We believe that Mr. Bitar brings to our Board significant business experience and brings operational expertise.
Vay Tham was appointed our Chief Revenue Officer in June 2024. Prior to joining ALT5, from 2018 to 2024, Mr. Tham was Managing Director and Head of Technology Investment Banking for PI Financial Corporation, where he was responsible for investment banking and merger and acquisition execution. Prior to joining PI Financial Corporation, Mr. Tham provided strategic leadership for companies such as Forge First Asset Management, Cormark Securities, Waterfall Investments, and National Bank Financial. Mr. Tham has in excess of 20 years of experience in the areas of investment banking, raising capital, launching start ups, and executing mergers and acquisitions. We believe that Mr. Tham’s significant experience in raising capital and investment management will be invaluable as we develop and grow our fintech operations.
Virland A. Johnson was appointed our Chief Financial Officer on August 21, 2017. Mr. Johnson had previously served us as a consultant beginning in February 2017. Mr. Johnson served as Chief Financial Officer for Live Ventures (Nasdaq: LIVE) between January 3, 2017 and September 21, 2021. Prior to joining Live Ventures, Mr. Johnson was Sr. Director of Revenue for JDA Software from February 2010 to April 2016, where he was responsible for revenue recognition determination, sales and contract support while acting as a subject matter expert. Prior to joining JDA, Mr. Johnson provided leadership and strategic direction while serving in C-Level executive roles in public and privately held companies such as Cultural Experiences Abroad, Inc., Fender Musical Instruments Corp., Triumph Group, Inc., Unitech Industries, Inc. and Younger Brothers Group, Inc. Mr. Johnson’s more than 30 years of experience is primarily in the areas of process improvement, complex debt financings, SEC and financial reporting, turn-arounds, corporate restructuring, global finance, merger and acquisitions and returning companies to profitability and enhancing stockholder value. Mr. Johnson holds a Bachelor’s degree in Accountancy from Arizona State University which he earned in 1982, and holds a CPA license in "Retired" status in the State of Arizona.
Delinquent Section 16(a) Reports
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company’s officers and directors, and persons who own more than 10% of a registered class of the Company’s equity securities, to file reports of ownership on Form 3 and changes in ownership on Form 4 or Form 5 with the SEC. Such officers, directors and 10% stockholders are also required by SEC rules to furnish the Company with copies of all Section 16(a) forms they file.
Based solely on its review of copies of such forms received by it, or written representations from certain reporting persons, the Company believes that, during the fiscal year ended December 28, 2024, all of its officers, directors and 10% stockholders complied with all Section 16(a) timely filing requirements.
Code of Ethics
Our Audit Committee has adopted a code of ethics applicable to our directors and officers (including our Chief Executive Officer, President, and Chief Financial Officer) and other of our senior executives and employees in accordance with applicable rules and regulations of the SEC and Nasdaq. A copy of the code of ethics may be obtained upon request, without charge, by addressing a request to Corporate Secretary, ALT5 Sigma Corporation, 325 E. Warm Springs Road, Suite 102, Las Vegas, Nevada 89119. The code of ethics is also posted on our website at www.alt5sigma.com under “Investors - Governance - Governance Documents.”
We intend to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding the amendment to, or waiver from, a provision of the code of ethics by posting such information on our website at the address and location specified above and, to the extent required by the listing standards of the Nasdaq Capital Market, by filing a Current Report on Form 8-K with the SEC disclosing such information.
Audit Committee
The Audit Committee (the “Audit Committee”) of our Board is comprised entirely of non-employee directors. In fiscal 2024, the members of our Audit Committee were Mr. Bitar, Mr. Butler (Chair), and Mr. Hajjar. Each of Messrs. Bitar, Butler, and Hajjar was an “independent” director as defined under Nasdaq rules. Our Audit Committee is responsible for selecting and approving our independent auditors, for relations with the independent auditors, for review of internal auditing functions (whether formal or informal) and internal controls, and for review of financial reporting policies to assure full disclosure of financial condition. Our Audit Committee operates under a written charter adopted by our Board, which is posted on our website at www.alt5sigma.com under the caption “Investors - Governance - Governance Documents.” The Board has determined that Mr. Butler is an “audit committee financial expert” as defined in SEC rules. Our Audit Committee operates under a written charter adopted by our Board, which is posted on our website at www.alt5sigma.com under the caption “Investors - Governance - Governance Documents.”
Compensation Committee
The Compensation Committee (the “Compensation Committee”) of our Board is comprised entirely of non-employee directors. In fiscal 2024, the members of our Compensation Committee were Mr. Hajjar and Mr. Butler (Chair), each of whom was also an “independent” director as defined under Nasdaq rules. Our Compensation Committee is responsible for review and approval of officer salaries and other compensation and benefits programs and determination of officer bonuses. Annual compensation for our executive officers, other than our Chief Executive Officer, is recommended by our Chief Executive Officer and approved by our Compensation Committee. The annual compensation for our Chief Executive Officer is recommended by our Compensation Committee and formally approved by our full Board. Our Compensation Committee may approve grants of equity awards under our stock compensation plans. Our Compensation Committee operates under a written charter adopted by our Board in March 2011, which is posted on our website at www.alt5sigma.com under the caption “Investors - Governance - Governance Documents.”
In the performance of its duties, our Compensation Committee may select independent compensation consultants to advise the committee when appropriate. No compensation consultant played a role in the executive officer and director compensation for fiscal 2024. In addition, our Compensation Committee may delegate authority to subcommittees where appropriate. Our Compensation Committee may separately meet with management if deemed necessary and appropriate.
Governance Committee
The Nominating and Corporate Governance Committee (our “Governance Committee”) is comprised entirely of non-employee directors. In fiscal 2024, the members of our Governance Committee were Mr. Butler and Mr. Bitar, each of whom was also an “independent” director as defined under Nasdaq rules. The primary purpose of our Governance Committee is to ensure an appropriate and effective role for our Board in our governance. The principal recurring duties and responsibilities of our Governance Committee include (i) making recommendations to our Board regarding the size and composition of our Board, (ii) identifying and recommending to our Board candidates for election as directors, (iii) reviewing our Board’s committee structure, composition and membership and recommending to our Board candidates for appointment as members of our Board’s standing committees, (iv) reviewing and recommending to our Board corporate governance policies and procedures, (v) reviewing our Code of Business Ethics and Conduct and compliance therewith,
and (vi) ensuring that emergency succession planning occurs for the positions of Chief Executive Officer, other key management positions, our Board chairperson and Board members. Our Governance Committee operates under a written charter adopted by our Board, which is posted on our website at www.alt5sigma.com under the caption “Investors - Governance - Governance Documents.”
Our Governance Committee will consider director candidates recommended by stockholders. The criteria applied by our Governance Committee in the selection of director candidates is the same whether the candidate was recommended by a Board member, an executive officer, a stockholder, or a third party, and accordingly, our Governance Committee has not deemed it necessary to adopt a formal policy regarding consideration of candidates recommended by stockholders. Stockholders wishing to recommend candidates for Board membership should submit the recommendations in writing to our Secretary.
Our Governance Committee identifies director candidates primarily by considering recommendations made by directors, management, and stockholders. Our Governance Committee also has the authority to retain third parties to identify and evaluate director candidates and to approve any associated fees or expenses. Board candidates are evaluated on the basis of a number of factors, including the candidate’s background, skills, judgment, diversity, experience with companies of comparable complexity and size, the interplay of the candidate’s experience with the experience of other Board members, the candidate’s independence or lack of independence, and the candidate’s qualifications for committee membership. Our Governance Committee does not assign any particular weighting or priority to any of these factors and considers each director candidate in the context of the current needs of our Board as a whole. Director candidates recommended by stockholders are evaluated in the same manner as candidates recommended by other persons.

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ITEM 11. EXECUTIVE COMPENSATION
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the cash and non-cash compensation for fiscal years ended December 28, 2024 and December 30, 2023, earned by each person who served as Chief Executive Officer during fiscal 2024, and our other most highly compensated executive officer who held office as of December 28, 2024 (“named executive officers”):
Summary Compensation Table
Name and Principal Position Year Salary ($) Bonus ($) Stock Award ($) (1)
Option Award ($) All Other Compensation ($) (2)
Total ($)
Peter Tassiopoulos 2024 - - 928,000 140,000 1,068,000
Chief Executive Officer 2023 - - - - - -
Tony Isaac 2024 692,592 250,000 - - - 942,592
President and Secretary 2023 617,709 - 200,000 - - 817,709
Virland A. Johnson 2024 87,692 - - - - 87,692
Chief Financial Officer 2023 224,346 - 125,000 - - 349,346
______________________________________________________
(1)On August 28, 2024, as an inducement grant, the Compensation Committee granted Mr. Tassiopoulos 400,000 restricted stock units, which vested immediately. The per-share pricing of the underlying shares of our common stock was $2.32.
(2)In lieu of a salary, Mr. Tassiopoulos was paid a consulting fee for the period beginning on August 28, 2024 and ending on December 28, 2024. Mr. Tassiopoulos was not employed by us in 2023, nor was he a consultant to us in that fiscal year.
Outstanding Equity Awards at December 28, 2024
The following table provides a summary of stock options outstanding for our Named Executive Officers at December 28, 2024:
Name Number of Securities Underlying Unexercised Options (in shares) exercisable Number of Securities Underlying Unexercised Options (in shares) unexercisable Option Exercise Price ($) Option Expiration Date
Peter Tassiopoulos - - $ - -
Tony Isaac 2,000 - $ 9.90 5/18/2025
Virland A. Johnson - - $ - -
Additionally, during the year ended December 28, 2024, the Company granted $928,000 in restricted stock units, or 400,000 in underlying shares of the Company's common stock, to Mr. Tassiopoulos, which were immediately vested. As of December 28, 2024, Mr. Tassiopoulos’ restricted stock units were outstanding.
Equity Incentive Plans
We use stock options, restricted stock awards, and restricted stock units to attract and retain executives, directors, consultants, and key employees. Stock options are currently outstanding under the 2011 Plan and the 2016 Plan, and restricted stock units are outstanding under the 2023 Plan. Our 2024 Equity Incentive Plan (the “2024 Plan”) was adopted by our Board in November 2024 and approved by the stockholders at the 2024 Annual Meeting of stockholders. Under the 2024 Plan, the maximum aggregate number of shares that may be subject to or delivered under Awards granted under the Plan is two million (2,800,000) shares. Awards may be in the form of a Stock Award, Option, Stock Appreciation Right, Stock Unit, or Other Stock-based Award granted in accordance with the terms of the respective Plan. Our 2023 Equity Incentive Plan (the “2023 Plan”) was adopted by our Board in August 2023 and approved by the stockholders at the 2023 Annual Meeting of stockholders. Under the 2023 Plan, the maximum aggregate number of shares that may be subject to or delivered under Awards granted under the Plan is two million (2,000,000) shares. Awards may be in the form of a Stock Award, Option, Stock Appreciation Right, Stock Unit, or Other Stock-based Award granted in accordance with the terms of the respective Plan. Our 2016 Stock Compensation Plan (the “2016 Plan”) was adopted by our Board in October 2016 and approved by the stockholders at the 2016 Annual Meeting of Stockholders. Under the Plan, we reserved an aggregate of 400,000 shares of our Common Stock for option grants. Our 2011 Stock Compensation Plan (the “2011 Plan”) was adopted by our Board in March 2011 and approved by our stockholders at the 2011 Annual Meeting of Stockholders. The 2011 Plan expired on December 29, 2016, but options granted under the 2011 Plan before it expired will continue to be exercisable in accordance with their terms. As of December 28, 2024, options to purchase an aggregate of up to 114,000 shares of our Common Stock were outstanding, including options to purchase an aggregate of up to 100,000 shares of our Common Stock under the 2016 Plan and options to purchase an aggregate of up to 14,000 shares of our Common Stock under the 2011 Plan. As of December 28, 2024, 1.7 million in restricted stock units, or 1.3 million underlying shares of our Common Stock, were outstanding. The Plans are administered by our Compensation Committee or our full Board, acting as the Committee.
Compensation of Non-Employee Directors
We use a combination of cash and share-based incentive compensation to attract and retain qualified candidates to serve on our Board. In setting director compensation, we consider the significant amount of time that directors expend fulfilling their duties to the Company, as well as the skill level that we require of members of our Board.
The table below presents cash and non-cash compensation paid to non-employee directors during the 2024 fiscal year.
Non-Management Director Compensation for Fiscal Year Ended December 28, 2024
Name Fees Earned or Paid in Cash ($) Option Awards ($) Stock Award ($) (1)
All Other Compensation ($) Total ($)
John Bitar 18,000 - - 18,000
Richard D. Butler, Jr. 30,000 - - 30,000
Nael Hajjar 14,400 - - 14,400
Ron Pitters - - 100,000 - 100,000
(1)Mr. Pitters was granted 50,000 restricted stock units, which vest quarterly with vesting having commenced on December 24, 2024. The per-share pricing of the underlying shares of our common stock is $2.00.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS
The following table sets forth as of March 25, 2025 the beneficial ownership of common stock by each of the Company’s directors, each of the named executive officers, and all directors and executive officers of the Company as a group, as well as information about beneficial owners of 5.0% or more of the Company’s voting securities. Beneficial ownership includes shares that may be acquired in the next 60 days through the exercise of options or warrants.
Beneficial Owner Position with Company Number of Shares Beneficially Owned (1)
Percent of Outstanding Common (2)
Executive Officers & Directors:
Peter Tassiopoulos (3)
Chief Executive Officer and Director 420,000 2.6 %
Tony Isaac (4)
President and Secretary 246,000 1.5 %
Virland A. Johnson (5)
Chief Financial Officer 16,000 *
Vay Tham Chief Revenue Officer - *
Richard D. Butler, Jr. (4)
Director 18,000 *
Ron Pitters (6)
Director 50,000 *
John Bitar Director 2,000 *
Nael Hajjar Director - *
All Executive Officers and Directors as a group (8 persons): 752,000 4.4 %
______________________________________________________
*Indicates ownership of less than 1% of the outstanding shares
(1)Unless otherwise noted, each person or group identified possesses sole voting and investment power with respect to such shares.
(2)Applicable percentage of ownership is based on 16,370,647 shares of common stock outstanding, plus issuances pending at our transfer agent as of March 25, 2025, plus, for each stockholder, all shares that such stockholder could acquire within 60 days of March 25, 2025, upon the exercise of existing stock options and warrants or conversion of existing convertible securities.
(3)Includes 20,000 shares of the Company's common stock and 400,000 Restricted Stock Units (“RSUs”). The address for Mr. Tassiopoulos is 325 E. Warm Springs Road, Suite 102, Las Vegas, Nevada 89119.
(4)Includes shares that could be purchased within 60 days of March 25, 2025, upon the exercise of existing stock options or warrants, as follows: Mr. Isaac, 2,000 shares and Mr. Butler, 4,000 shares. The address for each individual is 325 E. Warm Springs Road Suite 102, Las Vegas, Nevada 89119.
(5)Includes 3,000 shares of the Company's common stock and 13,000 RSUs. The address for Mr. Johnson is 325 E. Warm Springs Road, Suite 102, Las Vegas, Nevada 89119.
(6)Includes 50,000 RSUs. The address for Mr. Pitters is 325 E. Warm Springs Road, Suite 102, Las Vegas, Nevada 89119.
Beneficial Ownership of Series A-1 Convertible Preferred Stock
The following table sets forth, as of March 25, 2025, the beneficial ownership of Series A-1 Convertible Preferred Stock by each owner of 5% or more of the Company’s Series A-1 Convertible Preferred Stock. No officers or directors of the Company have beneficial ownership of Series A-1 Convertible Preferred Stock. There are no options or warrants to purchase shares of Series A-1 Convertible Preferred Stock.
Name of Beneficial Owner Number of Shares Beneficially Owned (1)
Percentage Outstanding Series A Preferred (2)
Greenfield Investments, LTD. (3)
23,480 100 %
______________________________________________________
(1)Unless otherwise noted, each person or group identified possesses sole voting and investment power with respect to such shares.
(2)Applicable percentage of ownership is based on 23,480 shares of Series A-1 Convertible Preferred Stock outstanding as of March 25, 2025.
(3)The business address for Greenfield with respect to the shares of Series A-1 Preferred Stock is P.O. Box 926, Regent Village Grace Bay Provenciales, Turks & Caicos Islands, British West Indies.
Beneficial Ownership of Series S Preferred Stock
Name of Beneficial Owner Amount and Nature of Beneficial Ownership (1)
Outstanding Series S Preferred (2)
Amol Soin, MD (3)
100,000 100 %
(1)Unless otherwise noted, each person or group identified possesses sole voting and investment power with respect to such shares.
(2)Applicable percentage of ownership is based on 100,000 shares of Series S Preferred Stock outstanding as of March 25, 2025. As of this date, Dr. Soin has not converted any of his shares of Series S Preferred Stock into shares of our Common Stock and is precluded from any such conversions due to certain contractual restrictions and other temporal and FDA restrictions set forth in the Certificate of Designation for the Series S Preferred Stock.
(3)The business address for Dr. Soin with respect to the shares of Series S Preferred Stock is c/o ALT5 Sigma Corporation, 325 E. Warm Springs Road, Suite 102, Las Vegas, Nevada 89119. Under the Amended and Restated Certificate of Designation of our Series S Preferred Stock, Dr. Soin is restricted to a beneficial ownership limit of 4.99% of our then outstanding Common Stock. Separate from this limitation, as of the Record Date, Dr. Soin could not convert any shares of his Series S Preferred Stock due to certain contractual restrictions and other temporal and FDA restrictions set forth in the Certificate of Designation for the Series S Preferred Stock. Separate from such restrictions, as of March 25, 2025, Dr. Soin could convert his shares of Series S Preferred Stock into 5,769,231 shares of our Common Stock, which would result in his reporting beneficial ownership of 35.2% in the “Percent of Outstanding Common” in the Common Stock chart, above.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Review, Approval or Ratification of Transactions with Related Persons
There are no family relationships among any of the directors or executive officers of the Company. Of the current directors, each of Messrs. Butler, Pitters, Bitar, and Hajjar is an “independent” director, as defined under the rules of The Nasdaq Stock Market and each has been an independent director since each joined the Board.
In accordance with its charter, the Audit Committee reviews and recommends for approval all related party transactions (as such term is defined for purposes of Item 404 of Regulation S-K). The Audit Committee participated in the approval of the transactions described above.
Shared Services
Tony Isaac, the Company’s President, is the father of Jon Isaac, President and Chief Executive Officer of Live Ventures and managing member of Isaac Capital Group LLC (“ICG”). Tony Isaac, President and Richard Butler, Board of Directors member of the Company, are both Board of Directors members of Live Ventures. The Company also shares certain executive, accounting and legal services with Live Ventures. The total services shared were approximately $144,000 and approximately $203,000 for fiscal years ending December 28, 2024 and December 30, 2023, respectively. Connexx rents approximately 9,900 square feet of office space from Live Ventures at its Las Vegas, Nevada office. Effective August 2023, due to the winding down of operations of the Recycling Subsidiaries, we ceased leasing office space in the Las Vegas, Nevada facility. The total rent and common area expenses for Connexx at the Las Vegas, Nevada office were approximately $17,000 and approximately $103,000 for fiscal years ending December 28, 2024 and December 30, 2023, respectively.
During Q4 2023, operations of the Recycling Subsidiaries were wound down and, ultimately, ceased. See Note 4 of the Consolidated Financial Statements. Consequently, outstanding liabilities for shared rent and services for the Recycling Subsidiaries reverted to the Company. As such, the Company has recorded a liability in the amount of approximately $258,000, which was offset against the gain on sale of the Recycling Subsidiaries.
Notes with Live Ventures and ICG
On February 7, 2024, the Company entered into a promissory notes with each of Live Ventures and ICG. The initial principal amount of each note is $300,000, with an interest rate of 10% per annum. Pursuant to an amendment to each note, $100,000 of principal, and accrued interest thereon, is due on September 7, 2024 for each note, and the balance of each note is due on December 31, 2024. At the Company’s option, the obligation under each note is convertible after the six-month anniversary thereof at a per-share conversion price of $0.61, subject to standard adjustments for (i) stock dividends and splits, (ii) subsequent rights offerings, and (iii) pro rata distributions. The Company’s board of directors approved the issuance of the two notes on February 7, 2024. As of December 28, 2024, the principal balances outstanding on each of the promissory notes was $327,000.
Isaac Consulting Agreement
On March 4, 2024, the Company entered into a two-year Consulting Agreement with Jon Isaac, pursuant to which he will provide to the Company (the “Services”): (i) strategic financial advice, including growth strategies, capital allocation, and financial restructuring; (ii) sales and business development advice, including for the acquisition of new clients and new products through networking, referrals, and marketing efforts for our prospective products; (iii) in-depth research and market intelligence on specific industries, sectors, and market trends; (iv) financial models and financial analysis to support strategic decision-making; (v) assistance, through site visits, in the preparation of new client offers and bids for proposed projects; (vi) weekly update calls with management to align on progress of objectives and goals; (vii) enhanced non-confidential materials; (viii) business risk management support; and (ix) other services to which the Company and he may agree that will be memorialized in writing if, when, and as needed during the two-year term.
As compensation for the Services, the Company (i) assigned to him two universal life insurance policies that relate to the life of one of the founders of our now-disposed legacy recycling business (as of March 4, 2024, the first policy had an accumulated value/surrender value of approximately $3,854 and the second had an accumulated value/surrender value of approximately $468); (ii) agreed to tender to him funds in our Canadian counsel’s trust account in the event that the prospective Order of the Court of Appeal for Ontario Canada in the matter styled, Amtim Capital Inc. and Appliance Recycling Centers of America, Case No. COA-23-CV-0156, became the final Order of the Court, which amount we received during the reporting period and tendered to Mr. Isaac $220,000; (iii) issued to him 200,000 restricted shares of our
common stock with the per-share value being the average of the Nasdaq Historical NOCP closing price during the five trading days prior to our board approving the Consulting Agreement, which shares were awarded from our 2023 Equity Incentive Plan; and (iv) issued to him a two-year, straight 10.0% convertible promissory note in the initial principal amount of $500,000, with an interest rate of 10.0% and a per-share conversion price equivalent to the per-share value of the restricted common stock that he was granted ($1.16). The maturity date of the promissory note is March 4, 2026. The value of the restricted shares was $232,000 on the date issued. As of December 28, 2024, the principal balance outstanding on the promissory note was $-.
Short-Term Advances
On April 18, 2024, ICG made a short-term demand advance to the Company in the amount of $100,000. The advance bears interest at a rate of 10% per annum until repaid. As of December 28, 2024, the principal amount outstanding was $48,000.
On May 28, 2024 and June 3, 2024, Novalk made short-term demand advances in the amount of $120,000 and $100,000, respectively, to the Company. Juan Yunis, an employee of Live Ventures, is the managing member of Novalk. The advances bears interest at a rate of 10% per annum until repaid. As of December 28, 2024, the principal amount outstanding was $110,000.
During June 3, 2024, Tony Isaac made a number of short-term demand advances in the aggregate amount of $62,000 to the Company. The advances bears interest at a rate of 10% per annum until repaid. As of December 28, 2024, the Company had repaid the advance in full (see Note 20 of the Consolidated Financial Statements).
Sale of Recycling Subsidiaries
On March 9, 2023, the Company entered into a Stock Purchase Agreement (the “Recycling Purchase Agreement”) with VM7 Corporation, a Delaware corporation (“VM7”), under which it agreed to acquire all of the outstanding equity interests of the Recycling Subsidiaries consisting of: (a) ARCA Recycling, Inc., (b) ARCA Canada, and (c) Connexx. The principal of VM7 is Virland A. Johnson, our Chief Financial Officer. The sale of all of the outstanding equity interests of the Recycling Subsidiaries to VM7 under the Recycling Purchase Agreement was consummated simultaneously with the execution of the Recycling Agreement. The Company's Board of Directors unanimously approved the Recycling Purchase Agreement and the Disposition Transaction. The Recycling Purchase Agreement is retroactively effective as of March 1, 2023. During the fourth quarter of fiscal 2023, VM7 determined that, after expending significant amounts of time and resources, it was unable to obtain sufficient equity or debt financing to continue the operations of the Recycling Subsidiaries. Accordingly, the Company was advised that the operations of the Recycling Subsidiaries were wound down and, ultimately, ceased. Because the Company did not receive all of the economic benefits of the Disposition Transaction and understands that it will not receive any future benefits of the Disposition Transaction, the Company determined to fully impair the $5.3 million carrying value of the Disposition Transaction on its balance sheet. The Company also determined not to exercise any of its remedies under the Recycling Purchase Agreement so that the Company could maintain its focus on its clinical-stage biopharmaceutical activities.
ICG Note
On August 28, 2019, ARCA Recycling entered into and delivered to ICG a secured revolving line of credit promissory note, whereby ICG agreed to provide ARCA Recycling with a $2.5 million revolving credit facility (the “ICG Note”). Jon Isaac is the manager and sole member of ICG, and the son of Tony Isaac, the President of ALT5 Sigma Corporation and, previously, ARCA Recycling. ICG is a record and beneficial owner of 13.6% of the outstanding common stock of the Company. The ICG Note was originally a component of the sale of the Recycling Subsidiaries in March 2023; however, because of the winding down of operations of the Recycling Subsidiaries during Q4 2023, and because the ICG Note was guaranteed by the Company, it recorded a liability in the amount of approximately $690,000 for the principal balance due on the note, which was offset against the gain on sale of the Recycling Subsidiaries (see Note 4). Additionally, effective February 2024, the ICG Note was amended to reflect the Company as co-maker on the ICG Note (see Note 20). The ICG Note matures in March 2026, and bears interest at 8.75% per annum. Monthly payments on the note are approximately $24,767. As of December 28, 2024 and December 30, 2023, the balance outstanding was $0 and $706,000, respectively.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Each year, the Audit Committee approves the annual audit engagement in advance. The Audit Committee also has established procedures to pre-approve all non-audit services provided by the Company’s independent registered public accounting firm. All non-audit services for the fiscal years ended December 28, 2024, and December 30, 2023 that are listed below were pre-approved.
Audit Fees: Audit fees include fees for the audit of the Corporation’s consolidated financial statements and interim reviews of the Corporation’s quarterly financial statements, comfort letters, consents and other services related to Securities and Exchange Commission matters.
Audit-Related Fees: Audit-related fees primarily include fees for certain audits of subsidiaries not required for purposes of WSRP's audit of the Corporation’s consolidated financial statements or for any other statutory or regulatory requirements, and consultations on various other accounting and reporting matters
Tax Fees: This category consists of professional services rendered by our independent auditors for tax compliance.
All Other Fees consist of fees for services other than the services described above.
The following fees were billed to us by our independent registered public accounting firm Hudgens CPA, PLLC (“Hudgens”):
Description December 28, 2024 December 30, 2023
Audit fees $ 104,988 $ 295,508
Audit-related Fees - -
Tax fees - -
All other fees - -
Total $ 104,988 $ 295,508
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)Financial Statements, Financial Statement Schedules and Exhibits
1.Financial Statements
See Index to Financial Statements under Item 8 of this report.
2.Financial Statement Schedules
None.
3.Exhibits
See Index to Exhibits