AVAT 10-K & 10-Q changes, risk factors and insider trading

Risks Related to Ownership of Our Class A Common Stock

If we fail to comply with the continued listing requirements of the Nasdaq Capital Market, including the Minimum Bid Requirement and the Market Value of Listed Securities requirement, our Class A Common Stock may be delisted, which could adversely affect its market liquidity and market price.

To maintain the listing of our Class A Common Stock on the Nasdaq Capital Market, we are required to meet certain listing requirements, including Nasdaq Listing Rule 5550(a)(2) which requires us to maintain the Minimum Bid Price Requirement and Nasdaq Listing Rule 5550(b)(2) which requires us to maintain the MVLS Requirement. As previously disclosed, on August 6, 2026, we received two letters from the Nasdaq Staff noting that, for a period of 33 consecutive days, we were not in compliance with the Minimum Bid Price Requirement nor the MLVS Requirement. In accordance with Nasdaq Listing Rules 5810(c)(3)(A) and 5810(c)(3)(C), we were granted an initial period of 180 calendar days, or until February 2, 2027, to regain compliance with both requirements.

To regain compliance with the Minimum Bid Price Requirement, the closing bid price of the Company’s Class A Common Stock must be at least $1.00 per share for a minimum of ten consecutive business days during the compliance period. To regain compliance with the MVLS Requirement, the Company’s MVLS must close at $35 million or more for a minimum of ten consecutive business days during the 180 calendar day compliance period. If we do not regain compliance, we may be eligible for an additional 180 day compliance period and if the Nasdaq Staff provide notice that our Class A Common Stock is subject to delisting, we may appeal to a hearings panel.

If we are unable to satisfy the Nasdaq Capital Market criteria for continued listing, the Class A Common Stock would be subject to delisting, which could negatively impact us by, among other things, (i) reducing the liquidity and market price of our Class A Common Stock; (ii) reducing the number of investors willing to hold or acquire our Class A Common Stock, which could negatively impact our ability to raise equity financing; (iii) decreasing the amount of news and analyst coverage of us; (iv) limiting our ability to issue additional securities or obtain additional financing in the future; (v) limiting our ability to use a registration statement to offer and sell freely tradable securities, thereby preventing us from accessing the public capital markets; and (vi) impairing our ability to provide equity incentives to our employees. In addition, delisting from the Nasdaq Capital Market may negatively impact our reputation and, consequently, our business.

Risks Related to Being a Public Company

We have identified two material weaknesses in our internal control over financial reporting. If remediation of these material weaknesses is not effective, if we experience additional material weaknesses, or if we otherwise fail to maintain an effective system of internal controls in the future, we may not be able to accurately report our financial condition or results of operations.

Effective internal control over financial reporting and disclosure controls and procedures are critical to our success as a public company. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with applicable accounting principles. Similarly, disclosure controls and procedures are designed to ensure that information required to be disclosed by us in reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management as appropriate to allow timely decisions regarding required disclosure. In connection with the review of our financial statements as of June 30, 2026, we identified two material weaknesses as defined under the Exchange Act, and by the PCAOB in internal control over financial reporting. A material weakness 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 financial statements will not be prevented or detected on a timely basis. We identified material weaknesses in (i) that we did not design and maintain effective controls over the financial reporting process, including the accounting for digital assets and the application of U.S. GAAP related to the measurement and valuation of digital asset transactions and balances, and (ii) the accounting for complex and non-routine transactions, including the accounting for the Company’s reverse recapitalization transaction and related entries. We are working to remediate these material weaknesses and are taking steps to strengthen our internal control over financial reporting. We plan to hire qualified staff as well as develop and implement formal policies, processes and documentation procedures relating to financial reporting, including the oversight of third-party service providers.

The actions that we are taking are subject to ongoing executive management review. If we are unable to successfully remediate the material weaknesses, or if in the future, they identify further material weaknesses in internal controls over financial reporting, we may not detect errors on a timely basis, and financial statements may be materially misstated. We may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting, which could harm our operating results, cause investors to lose confidence in reported financial information and cause the trading price of Company Stock to fall. In addition, as a public company, we will be required to file accurate and timely quarterly and annual reports with the SEC under the Exchange Act. Any failure to report our financial results on an accurate and timely basis could result in sanctions, lawsuits, delisting of shares from Nasdaq or other adverse consequences that could materially harm our business. In addition, we could become subject to investigations by Nasdaq, the SEC and other regulatory authorities, and become subject to litigation from investors and stockholders, which could harm our reputation and financial condition, or divert financial and management resources from our core business.

We intend to remediate the material weaknesses through formalizing and enhancing policies and procedures regarding the financial reporting process to support the effective deployment of management’s directives and control activities. This includes our plan to design and implement control activities in response to the risks posed as a result of the lack of accounting for digital assets and for complex and non-routine transactions.

While we will work to remediate the material weaknesses as quickly and efficiently as possible, we cannot at this time provide an expected timeline in connection with any remediation plan, and our initiatives may not prove to be successful in remediating the material weaknesses or preventing additional material weaknesses or significant deficiencies in our internal control over financial reporting in the future. These remediation measures may be time consuming and costly and might place significant demands on our financial and operational resources. In the future, we may identify additional material weaknesses or significant deficiencies in our internal control over financial reporting. In addition, our current internal control over financial reporting and disclosure controls and procedures, and any new internal control over financial reporting and disclosure controls and procedures that we develop, may become inadequate because of changes in our business, operations and other factors, some of which may be beyond our control.

As a private company, we were not required to assess and conclude on the effectiveness of our internal control over financial reporting in a manner that meets the standards of publicly traded companies required by Section 404(a). Our management has not completed a comprehensive assessment of the effectiveness of our internal control over financial reporting, and our independent registered public accounting firm has not conducted an audit of our internal control over financial reporting. We will not be required, pursuant to Section 404, to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting until the year following our first annual report required to be filed with the SEC. This assessment will need to include disclosure of any material weaknesses identified by our management in our internal control over financial reporting. At that time, our management may conclude that our internal control over financial reporting remains not effective. In addition, once we cease to qualify as an “emerging growth company,” our independent registered public accounting firm will be required to attest to the effectiveness of our internal control over financial reporting. Even if our management concludes that our internal control over financial reporting is effective, our independent registered public accounting firm, after conducting its own independent testing, may disagree with our assessment and may issue a report that contains an adverse opinion if, in their evaluation, there are deficiencies that, individually or in combination, result in one or more material weaknesses.

The process of designing and implementing effective internal controls is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to expend significant resources to maintain a system of internal controls that is adequate to satisfy our reporting obligations as a public company. Moreover, our compliance with Section 404 will require that we incur substantial expenses and expend significant management efforts. Testing and maintaining internal controls may divert our management’s attention from other matters that are important to our business. During the course of implementing, documenting and testing our internal control over financial reporting, in order to satisfy the requirements of Section 404, we may identify other weaknesses and deficiencies in our internal control over financial reporting and disclosure controls and procedures. Further, despite our efforts to implement and maintain effective internal control over financial reporting and disclosure controls and procedures, we may not be able to detect or prevent all errors or instances of fraud and additional weaknesses in our internal control over financial reporting may be identified in the future.

A material weakness in our internal control over financial reporting, failure to maintain effective disclosure controls and procedures or any difficulties encountered in their implementation or improvement could lead to errors in our annual or interim financial statements or restatements of previously issued financial statements or could cause us to fail to meet our financial reporting obligations, any of which could adversely affect our business, results of operations, financial condition and future prospects. Such failures could also lead to a loss of investor confidence in the accuracy and completeness of our financial reports, which in turn could have a negative impact on the market price of Company Stock. Additionally, ineffective internal control over financial reporting could expose us to increased risk of fraud, misuse of corporate assets and legal actions under U.S. securities laws and subject us to potential delisting from Nasdaq to regulatory investigations and to civil or criminal sanctions. Failure to remedy any material weakness in our internal control over financial reporting, or to implement or maintain other effective control systems required of public companies, could also restrict our future access to the capital markets.

On July 2, 2026, AVAT signed a Master Digital Currency Loan Agreement (the “Galaxy Digital Master Digital Currency Loan Agreement”) with Galaxy Digital LLC (the “Galaxy Digital”) to facilitate the potential future execution of collateralized loans in which Galaxy Digital may lend to AVAT certain Digital Currency or cash (dependent on the loaned asset specified in the relevant executed loan term sheet) and AVAT would pay a borrow fee as well as pledge collateral on or prior to the date of any drawdown pursuant to such future loan term sheet, as applicable. The loans under the Master Digital Currency Loan Agreement may be open loans without a maturity date, whereby AVAT may repay and Galaxy Digital may recall the loan at any time, or term loans with a predetermined maturity date.

On July 10, 2026, AVAT and Galaxy Digital executed a loan term sheet, pursuant to which AVAT agreed to borrow from Galaxy Digital, and Galaxy Digital agreed to lend to AVAT, a loan of $10 million pursuant to a term loan with a maturity date of January 10, 2027 (the “July 2026 Collateralized Term Loan”). The borrow fee is 10.5% per annum. AVAT will pledge approximately 2.9 million AVAX pursuant to the July 2026 Collateralized Term Loan, which is based on an initial collateral level of 180%. The collateral will be held in a segregated custody account with Anchorage pursuant to an Account Control Agreement among Anchorage, AVAT and Galaxy Digital.

Staking revenue, net of fees, for the three and six months ended June 30, 2026, was $1,545,470 and $3,602,544, respectively. For the three and six months ended June 30, 2026, revenue from traditional staking activities was $1,545,470 and $3,602,544, respectively, primarily driven by staking rewards earned on digital assets held and delegated by Avalanche Treasury Company LLC, net of validator and platform fees.

Included in the above staking rewards, for both the three and six months ended June 30, 2026, the Company recognized $910,987 of revenue from liquid staking activities upon redemption of liquid staking tokens, consisting of $660,693 related to stAVAX and $250,294 related to sAVAX. Liquid staking rewards accrue through increases in the respective AVAX-to-stAVAX and AVAX-to-sAVAX exchange rates and are recognized when the related liquid staking tokens are redeemed for AVAX.

General and administrative expenses for the three months ended June 30, 2026 were $3,498,994. General and administrative expenses consisted primarily of personnel-related costs, including salaries, bonuses and benefits, professional fees, insurance expense, and other corporate overhead costs. Professional fees were primarily attributable to legal, accounting, audit, advisory, SEC reporting, and compliance-related services incurred in connection with operating as a public company. The remaining expenses consisted principally of technology and software subscriptions, rent, travel, marketing, transfer agent fees, and other administrative costs. General and administrative expenses for the six months ended June 30, 2026 were $5,441,428. The year-to-date expense was primarily driven by personnel-related costs, legal and professional services, directors’ and officers’ insurance, and public company operating expenses.

Transaction Costs Incurred in Connection with the Business Combination

For the three and six months ended June 30, 2026, transaction costs incurred were as follows:

These costs are considered one time costs for the purpose of completing the Business Combination.

Changes in fair value of digital assets resulted in losses of $14.6 million and $60.8 million for the three and six months ended June 30, 2026, respectively. These losses related to the Company’s AVAX holdings and were primarily attributable to decreases in the market price of AVAX during the respective periods.

The Company recognized realized losses on digital assets of $10.0 million and $10.5 million for the three and six months ended June 30, 2026, respectively, primarily related to dispositions of AVAX at values below their carrying amounts.

In addition, in connection with the redemption of its liquid staking assets during the three and six months ended June 30, 2026, the Company recognized gains of $1.8 million related to stAVAX and $2.1 million related to sAVAX. These gains resulted from the difference between the carrying amounts of the respective liquid staking assets and the value of AVAX received upon redemption, excluding amounts attributable to liquid staking rewards recognized as staking revenue.

The Company recognized impairment losses on its liquid staking digital assets of $11.1 million and $16.2 million for the three and six months ended June 30, 2026, respectively. The impairment losses resulted from declines in the value of the underlying AVAX during the periods in which the Company held stAVAX and sAVAX.

Other income (expense) for the three and six months ended June 30, 2026 was net other income of $8.2 million and $33.1 million, respectively. Other income for the periods was primarily driven by gains recognized from changes in the fair value of the Company’s token sale liability, earn-out liability and post-share issuance liability, partially offset by a loss recognized upon settlement of the token sale liability, losses recognized upon the initial recognition of the earn-out liability and post-share issuance liability, and interest expense.

For the three and six months ended June 30, 2026, we recognized gains of $16.6 million and $41.4 million, respectively, related to changes in the fair value of the Company’s token sale liability. These gains resulted from the remeasurement of the liability during the respective periods based on changes in the underlying valuation assumptions and market conditions. On June 11, 2026, the token sale liability was settled through the issuance of Class A Common Stock. In connection with the settlement, we recognized a loss of $7.0 million during both the three and six months ended June 30, 2026, representing the difference between the carrying value of the token sale liability immediately prior to settlement and the fair value of the equity issued to satisfy the obligation.

During the three and six months ended June 30, 2026, we recognized a loss of $3.2 million upon the initial recognition of the earn-out liability and a gain of $2.8 million from the subsequent change in the fair value of the earn-out liability. We also recognized a loss of $3.7 million upon the initial recognition of the post-share issuance liability and a gain of $2.7 million from the subsequent change in the fair value of the post-share issuance liability during both the three and six months ended June 30, 2026.

Interest income was $15,166 and $21,070 for the three and six months ended June 30, 2026, respectively, and was primarily attributable to interest earned on cash balances. Other income was $14,815 and $35,874 for the three and six months ended June 30, 2026, respectively, and primarily consisted of miscellaneous non-operating items recognized during the periods. Interest expense was $83,808 for both the three and six months ended June 30, 2026 and was primarily attributable to interest accrued on the Company’s outstanding note payable.

Our primary sources of liquidity consist of cash on hand and proceeds from financing activities. As of June 30, 2026, we had $23.0 million outstanding under a collateralized borrowing facility with FalconX Charlie, Inc. providing up to $25.0 million of borrowing capacity. In addition, subsequent to June 30, 2026, we entered into a Master Digital Currency Loan Agreement with Galaxy Digital LLC and executed a $10.0 million collateralized term loan. We believe these resources provide us with sufficient liquidity to fund our operations and meet our obligations as they become due for at least the next twelve months.

The Company assesses its liquidity in terms of its ability to generate and obtain sufficient cash to meet its current and future obligations. The Company’s primary uses of cash are expected to be working capital requirements, debt service obligations, potential business acquisitions, and other general corporate purposes. Future capital requirements will depend on a variety of factors, including operational performance, strategic initiatives, and market conditions.

Based on its assessment, including the Company’s liquidity following the completion of the Business Combination and receipt of the net loan proceeds, management concluded that there are no conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for at least one year from the date these unaudited condensed consolidated financial statements are issued.

Net cash used in operating activities for the six months ended June 30, 2026 was $19.4 million. The difference between net loss and net cash used in operating activities was primarily attributable to non-cash adjustments, including a $60.8 million change in the fair value of AVAX digital assets, $16.2 million of impairment losses on stAVAX digital assets, $10.5 million of realized losses on AVAX digital assets, a $7.0 million loss on settlement of the token sale liability, a $3.2 million loss upon initial recognition of the earn-out share liability, and a $3.7 million loss upon initial recognition of the post-closing shares liability. These adjustments were partially offset by a $41.4 million gain related to the change in fair value of the token sale liability, a $2.8 million gain related to the change in fair value of the earn-out share liability, and a $2.7 million gain related to the change in fair value of the post-closing shares liability.

Changes in operating assets and liabilities also affected operating cash flows, primarily reflecting a $1.4 million decrease in amounts due from a related party, partially offset by a $0.2 million decrease in accounts payable and accrued expenses and an increase in prepaid expenses.

The acquisition and disposition of sAVAX and stAVAX reflect the Company’s liquid staking activities, pursuant to which the Company stakes AVAX through third-party liquid staking protocols and receives liquid staking tokens representing claims on the underlying staked AVAX and accumulated staking rewards.

Net cash provided by financing activities for the six months ended June 30, 2026 was $23.0 million, primarily consisting of $23.0 million of proceeds from a note payable.